Travers Smith's Alternative Insights: Does The UK Have A Coherent Strategy For Private Capital? (Podcast)

Limited new tax burdens: The UK Budget did not introduce significant additional taxes on private capital executives or wealthy individuals, offering some relief for the sector following unhelpful speculation in the run-up.

Growth-friendly measures: Targeted changes for entrepreneurs and high-growth businesses, including enhanced EMI, EIS, and VCT limits, show government intent to stimulate investment and innovation.

Listening, not yet leading: Though the government has constructively engaged with the industry and eased some pain points, there is still not yet a clear, funded and coherent strategy for attracting and retaining global private capital in the UK.

A regular briefing for the alternative asset management industry.

There had been much speculation in the run-up to this week's UK Budget that the government's anticipated tax increases would have a big impact on private capital. That would have been a significant blow, after the changes announced last year to the taxation of carried interest and the taxation of so-called "non-doms". However, it seems that the industry's voice – and that of the wider finance community – was heard.

Wednesday's announcements did not include a wealth tax. There was no exit tax on those leaving the UK. There were no new taxes for partners – which would have been a major issue for the many private markets firms who use a UK LLP for their management vehicle. There had also been a worry that a rise in income tax rates would automatically trigger another increase in the effective tax rate on carried interest (beyond the hikes announced last year). In the event, none of those concerns were realised. (Our 2025 UK Budget website is here, and our review of the measures of most interest to private capital firms is here.)

The 2025 budget was a "steady as you go" affair. There were significant tax rises – £26bn is set to be raised by 2029/30 – and some of those will have a limited impact on the private capital sector. The intense speculation in recent weeks has also been damaging, calling into question the UK's reputation for a stable fiscal environment and accelerating the departure of some key executives.

It is hard not to be sympathetic. Rachel Reeves, the finance minister, is trying to balance a need for increased taxes to fund the public spending that her party demands (and that, instinctively, she will want to deliver) with her "number one mission" of driving growth and innovation. And, at the same time, she needs to keep the financial markets on side. That's a tough balancing act, and the immediate response to the budget suggests that it will not itself precipitate a political crisis.

But, if the finance industry may be somewhat relieved, it is worth asking whether a clear and coherent strategy for the alternatives industry can be discerned from these and other recent announcements. Will they stem the flow of people leaving the UK, and will private capital managers still choose the UK for their headquarters? Will British companies be attractive targets for investment in the decade ahead?

It is right to acknowledge the clear signs that the government does want to stimulate the private markets – and they go beyond warm words. Even though tax increases last year were a hard knock, constructive engagement by the government averted the worst outcomes, and other helpful changes – such as relaxations in the treatment of non-resident executives – have somewhat eased the pain.

The package of measures in this week's Budget designed to support high-growth businesses and entrepreneurs is also welcome. These include a call for evidence on tax support for entrepreneurs and increases to the limits that apply to Enterprise Management Incentives (EMIs), which facilitate flexible, tax-advantaged share options for growing companies. There is also relief from stamp duty reserve tax (SDRT) for shares in companies newly listed on a UK regulated market, which will be a welcome boost for public markets, and increases in the existing annual, lifetime and gross assets limits for companies under the Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) schemes. A call out for a scheme to encourage more pension investment in venture capital was well-received.

The government also made positive noises about taking on board industry feedback in its upcoming reform of the UK's safe harbour that helps prevent an investment manager constituting a taxable UK presence of its non-resident clients (the "investment manager exemption" or "IME"). It may also be preparing to improve the UK's successful preferential tax regime for asset holding companies ("qualifying asset holding companies" or "QAHCs"). Although it is not entirely clear what sort of changes the government has in mind – the announcement refers to ensuring the regime continues to work effectively – it does seem that industry stakeholders will be involved in the reform process.

It is hard to say that these measures amount to a clear and coherent strategy for high growth companies and those that finance them – and they do not materially move the needle either way for those thinking about where to base themselves and their firms, and where to invest their funds. But it is at least clear that the government is now listening to the industry and understands the challenges. There is an active interest in policies that stimulate growth and investment, as evidenced by the "UK's Modern Industrial Strategy", laid out earlier this year and broadly welcomed by the industry – and some announcements this week will bolster that plan.

If the tax raising measures in this Budget, and the additional headroom the government now has, can steady the ship, that should make space to build on this progress and chart a clearer course.

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