Co-investment requirements in the proposed new PE/VC tax regime

MM&K recently submitted responses to HM Treasury in respect of the most recent tranche of public consultation questions it had regarding proposed changes to Carried Interest.

One of the core themes of these questions was around the connection between Carried interest and “Co-Investment” requirements – and how they might be linked going forwards.

We submitted that, based on our substantial experience and data, Carried Interest is often spread further into a firm than many people suspect.  As a consequence of this, there is a significant minority of the Carried Interest holders who may not have sufficient resources to fund Co-investment (whether through direct purchase or serviced loans).

Accordingly, in our view, any requirements to directly link the size of Carried Interest and Co-Investment is likely to be prejudicial against younger people and will have the effect of concentrating monies in the hands of the few.

We have made a number of technical suggestions as to how this issue could be resolved – and also questioned whether this link is even necessary.

In our submission, we also made it clear that we thought that the lack of transitional arrangements in respect of the proposed changes to Carried Interest was not only harmful to the industry’s involved, but sent a general message to the wider business world that “UK plc” may not be as reliable and certain a place to contract business.

Given the resent news regarding HMRC deciding to reverse a 2024 decision regarding the tax treatment of members of LLPs (which would have affected many PE/VC businesses) there is hope that the government may be open to making reasonable adjustments to plans it has already made.

If the above matters resonate and you would like to discuss how MM&K could assist you with developing your approaches in these areas – please contact Stuart James (stuart.james@mm-k.com) in the first instance.

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