UK equities and carried interest in the private markets industry came into focus after Chancellor Rachel Reeves delivered the Budget today – a budget she claimed would restore economic stability and begin a decade of national renewal.
Among proposals was a commitment to boosting public investment by over £100 billion over the next five years across roads, rail, schools and hospitals whilst “keeping debt on a downward path”.
Capital gains tax (CGT) changes were welcomed by one onlooker. CGT will increase from 10% to 18% for those paying the lower rate, and 20% to 24% for those paying the higher rate. These new rates will match the residential property rates, which will remain unchanged.
Craig Ritchie, a partner at GSB Wealth, said: “Increases to capital gains tax are not as high as expected and level the playing field once more between shares/funds and property investing.”
He said that, overall, the budget had not been as hard hitting on personal finances as perhaps expected, largely thanks to the increase in National Insurance Contribution (NIC) paid by employers. The rate of employer NIC will increase by 1.2 percentage points, to 15% from 6 April 2025.
The private equity industry will be relieved at only a 4% increase to the carried interest capital gains tax rate
There is also a reduction in the threshold for employer NIC payments – to £5,000 – which Nimesh Shah, CEO of audit firm Blick Rothenburg, said was the “real tax revenue raiser”, equating to an additional cost of £615 per employee.
Shah also drew attention to the tax treatment of carried interest, which will be reformed by first increasing the CGT rates on carried interest to 32% and then, from April 2026, moving to a revised regime – with bespoke rules to reflect the characteristics of the reward.
“The private equity industry will be relieved at only a 4% increase to the carried interest capital gains tax rate,” Shah said.
Ekaterina Almasque, general partner at early-stage tech VC firm OpenOcean, said: “We’re glad to see Chancellor Reeves step back from the brink on carried interest. When it comes to investment, there’s value in the carrot as well as the stick. Carried interest rewards fund managers who take long-term risks, which frees the capital needed to support early-stage innovation, particularly in R&D-intensive fields like quantum computing and AI. These sectors require sustained, high-stakes investment, where tremendous strategic asset value can be created, but the journey involves a great deal of risk-taking and patience.”
However, Nigel Green, CEO of deVere Group, speaking about broader reforms, warned of a talent exodus.
“These new measures are a clear disincentive to live, work, and invest in the UK. We’re already seeing a surge in interest as individuals and families look to secure their financial futures elsewhere,” he claimed.
UK equity ISA “dumped”
Meanwhile, the decision to abandon the ISA product aimed purely at UK equities was welcomed by Susannah Streeter, head of money and markets at fund platform Hargreaves Lansdown.
‘’It’s a relief to see plans for a UK ISA finally dumped on the scrapheap. It was a well-intentioned idea but was set to lead to unfortunate consequences. The plan was to direct shareholders money into UK-listed companies, but such a move would have added unnecessary complexity and could have a negative impact on UK investors.
“If they had been nudged into a UK ISA, it would have potentially increased risk by unnecessarily concentrating portfolios. This could be a detriment, especially if there was more volatility in the London markets compared to others.”
UK retail investors are already enthusiastic holders of UK equities, said Streeter. Around 35% hold UK equities directly, with 80% of trades by value taking place on the London market.
Good for markets
Emma Mogford, fund manager at Premier Miton Monthly Income Fund, said the Budget “sets the UK on a path to higher investment and growth, which should be good for UK equities”.
“UK high street retailers should be pleased to see business rates relief. While the increase in minimum wages will initially mean a higher wage bill, the boost to low incomes will flow through into consumer spending and ultimately lead to higher retail sales.”
Mogford added: “Looking ahead, we have the Mansion House speech on 14th November where Rachel Reeves will set out her ambitions for UK pensions. After her visits to Canadian pension funds, there is a real chance she comes out with a bold plan to both improve outcomes for pension investments and revitalise UK capital markets by incentivising investment in the UK equity market.”
Elsewhere in her Budget speech, Chancellor Reeves said this government will not make a return to austerity and will instead boost investment to rebuild Britain by “investing in the fabric of the country”.
She pointed out action already taken towards this aim included establishing the National Wealth Fund, publishing the Industrial Strategy green paper, and hosting the International Investment Summit.
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