One minute with Laura Underhill, Partner at Clifford Chance.
What’s keeping you busy at work?
As always at this time of year, our team is busy with transactions aiming to close before Christmas/year end. For me, that’s predominantly fundraisings, where I focus both on structuring and negotiations between fund managers and investors, as well as a few secondary transactions.
What’s your reaction to the Budget?
The big Budget announcement for me was the reform of carried interest taxation. After much speculation ahead of the Budget, it is very useful to have clarity on approach in the immediate term and greater insights into the government’s proposals for the new regime that is anticipated to apply from April 2026.
From April 2026, the government intends to introduce fundamental changes with the introduction of a new income tax regime applying to carried interest. While the mechanism for reaching the number is rather convoluted, the expectation is that the new regime would typically result in an effective tax rate of around 34% on ‘qualifying carried interest’. This would put the UK at the higher end when compared with comparable jurisdictions, but not too far out of step. As ever, there will be lots to be ironed out ahead of implementation, including the conditions to be met to be ‘qualifying carried interest’; ensuring that the rules work appropriately across different asset classes; and interaction with overseas tax systems. The fact that there will be a consultation period up until the end of January 2025 is very welcome.
If you could make one change to tax, what would it be?
The one point I find myself coming back to again and again is the classification of overseas entities for UK tax purposes. The funds I work with are typically raising money from investors globally and investing in a broad range of jurisdictions and so I commonly come across different vehicle types that need to be analysed from a UK tax perspective – often not a straightforward task! It’s an issue I see outside of the funds context too, and it seems that there is always someone in our tax group looking at a version of this question whether it is considering if an entity is transparent or opaque for UK income tax purposes, questions as to treaty eligibility or the ability to benefit from the qualifying private placement exemption, or concerns around an entity breaking a stamp duty group. While the HMRC entity classification list is helpful, I would love to see a more comprehensive system that could provide more certainty in this area.
Has a recent tax case caught your eye?
This has to be N Millican v HMRC [2024] UKFTT 618 (TC)which looked at whether an individual was caught by the carried interest rules. While of course we are expecting significant reform in this area, I would expect that many of the concepts discussed in the case will continue to be relevant, even over the longer term.
Perhaps the key point for me was the regulatory question of whether or not a particular entity is a ‘collective investment scheme’. We see this definition used increasingly in tax legislation (for example in the disguised investment management fees rules, the qualifying asset holding company rules, and the non-resident capital gains rules), so it is interesting to see how the FTT approached its interpretation in a tax case. Some of the discussion in the judgement increased the general nervousness I have about seeing regulatory definitions used in tax legislation – perhaps I can add a move away from that approach to my wish list of changes to tax legislation!
And finally, you might not know this about me but...
In my spare time I love to get out of the city and spend time in the countryside. I grew up in rural Wales on the Pembrokeshire coast and take any opportunities I have to get onto the beach or into the woods. Over half term, I had a wonderful few days introducing my two little children and my golden retriever puppy to the forests of the Brecon Beacons.
One minute with Laura Underhill, Partner at Clifford Chance.
What’s keeping you busy at work?
As always at this time of year, our team is busy with transactions aiming to close before Christmas/year end. For me, that’s predominantly fundraisings, where I focus both on structuring and negotiations between fund managers and investors, as well as a few secondary transactions.
What’s your reaction to the Budget?
The big Budget announcement for me was the reform of carried interest taxation. After much speculation ahead of the Budget, it is very useful to have clarity on approach in the immediate term and greater insights into the government’s proposals for the new regime that is anticipated to apply from April 2026.
From April 2026, the government intends to introduce fundamental changes with the introduction of a new income tax regime applying to carried interest. While the mechanism for reaching the number is rather convoluted, the expectation is that the new regime would typically result in an effective tax rate of around 34% on ‘qualifying carried interest’. This would put the UK at the higher end when compared with comparable jurisdictions, but not too far out of step. As ever, there will be lots to be ironed out ahead of implementation, including the conditions to be met to be ‘qualifying carried interest’; ensuring that the rules work appropriately across different asset classes; and interaction with overseas tax systems. The fact that there will be a consultation period up until the end of January 2025 is very welcome.
If you could make one change to tax, what would it be?
The one point I find myself coming back to again and again is the classification of overseas entities for UK tax purposes. The funds I work with are typically raising money from investors globally and investing in a broad range of jurisdictions and so I commonly come across different vehicle types that need to be analysed from a UK tax perspective – often not a straightforward task! It’s an issue I see outside of the funds context too, and it seems that there is always someone in our tax group looking at a version of this question whether it is considering if an entity is transparent or opaque for UK income tax purposes, questions as to treaty eligibility or the ability to benefit from the qualifying private placement exemption, or concerns around an entity breaking a stamp duty group. While the HMRC entity classification list is helpful, I would love to see a more comprehensive system that could provide more certainty in this area.
Has a recent tax case caught your eye?
This has to be N Millican v HMRC [2024] UKFTT 618 (TC)which looked at whether an individual was caught by the carried interest rules. While of course we are expecting significant reform in this area, I would expect that many of the concepts discussed in the case will continue to be relevant, even over the longer term.
Perhaps the key point for me was the regulatory question of whether or not a particular entity is a ‘collective investment scheme’. We see this definition used increasingly in tax legislation (for example in the disguised investment management fees rules, the qualifying asset holding company rules, and the non-resident capital gains rules), so it is interesting to see how the FTT approached its interpretation in a tax case. Some of the discussion in the judgement increased the general nervousness I have about seeing regulatory definitions used in tax legislation – perhaps I can add a move away from that approach to my wish list of changes to tax legislation!
And finally, you might not know this about me but...
In my spare time I love to get out of the city and spend time in the countryside. I grew up in rural Wales on the Pembrokeshire coast and take any opportunities I have to get onto the beach or into the woods. Over half term, I had a wonderful few days introducing my two little children and my golden retriever puppy to the forests of the Brecon Beacons.
