Key Tax Reforms You Need to Know
The UK government has introduced three major reforms from Budget 2025, effective from 6 April 2026, which will significantly impact entities, carried interest arrangements, and inheritance planning. These are:
- Reforming Carried Interest: shifting it into the Income Tax framework with trading profits subject to Income Tax and Class 4 National Insurance contributions. (gov.uk)
- Changes to Agricultural Property Relief (APR) & Business Property Relief (BPR): limiting 100% relief to the first £1 million of combined business and agricultural property; amounts above that will drop to 50%. Relief will become transferable between spouses and civil partners. (gov.uk)
- Matching CGT rates for Business Asset Disposal Relief (BADR) and Investors’ Relief to the main lower rate of 18%, from 6 April 2026. (gov.uk)
Who is Affected & When?
| Affected Group | Reform | Key Date | Practical Effects |
|---|---|---|---|
| Carried interest recipients (investment fund partners) | Former CGT taxed regimes replaced; carried interest treated as trading profits; “qualifying” carried interest taxed at 72.5% of qualifying profits; Class 4 NICs apply. (gov.uk) | From 6 April 2026 | Increase in tax and NIC burden; must assess hold-periods to determine “qualifying” portion; update contracts and fund documentation |
| Farms and family businesses inheriting assets | APR & BPR capped at £1 million 100% relief, beyond that relief drops to 50% | 6 April 2026 | Estates above threshold will face greater Inheritance Tax (IHT) on excess; planning for trusts and spouse transfers becomes more critical |
| Business owners using BADR / Investors’ Relief | Lower CGT relief rate to 18% for disposals | 6 April 2026 | Gains from qualifying sales may incur higher CGT liabilities; early exit or restructuring before effective date may be beneficial |
Planning Strategies & Actionable Advice
- If you're fund management or with carried interest: review investment scheme terms now. Longer holding periods may increase qualifying carried interest; structure carried interest agreements to maximize deductions and clarity under the new regime.
- Farms or businesses expecting to pass on agricultural or business assets: use the spouse or civil partner transferability for the £1 million relief; explore gifting or lifetime transfers before threshold applies. Trust-based strategies should be re-examined.
- For disposals under BADR or Investors’ Relief: consider completing qualifying transactions before 6 April 2026 if possible; otherwise re-estimate your gain and tax using 18% rate rather than previous lower regime.
Example Entity Scenario
Family Fund LP has three partners including one who receives carried interest, and owns agricultural land valued £1.5 million as part of its assets.
- Carried interest will now be taxed based on trading profits; only 72.5% is qualifying profits, with IHT relief capped on property relief above £1 million
- The £500,000 above the relief cap gets taxed at 50% relief instead of 100%
- Transferability between spouses helps shift some asset value into spouse’s quota—but legal documentation and timing are essential
Final Thoughts
These entity-level reforms make early action crucial, especially given the effective dates. Contracts, accounting methods, ownership structures, and legacy planning should all be reviewed before 6 April 2026. For those with large stakes in carried-interest or family-held assets, hiring tax professionals familiar with the new framework is strongly advised.