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The Chancellor's Spring Statement PwC update

As you will no doubt be aware the Chancellor has recently delivered his Spring Statement. As expected, there were no immediate tax changes in the Spring Statement. The tax reform was clearly not on the Chancellor’s agenda with only a nod towards a continued commitment to the UK Digital Services Tax with some comments hinting at the possibility of summer Brexit Budget.

Carried interest valuations

Legislative changes in the UK, as well as requirements in various other jurisdictions, and market trends in both the award of ‘Carry’ to employees and larger and longer duration funds, with more joiners and leavers throughout the fund lifecycle, have increased the requirement for and scrutiny of the valuation of carried interest rights for tax purposes.

Profit fragmentation – Finance Bill update

Substantial changes have been made to the profit fragmentation anti-avoidance since the original consultation was published. These rules apply to both individuals and corporates from April 2019. Businesses, including partnerships, with international aspects should consider whether they may apply and, if so, whether they need to take action.

Profit fragmentation – draft legislation

The new anti-avoidance rules on profit fragmentation apply from April 2019. They are designed to target abusive arrangements but the draft legislation is much wider. We believe that many normal businesses may need to notify HMRC of arrangements involving overseas entities under the new rules, even if it is clear that no extra tax will ultimately be due. We have brought this to HMRC’s attention but it is unlikely that any industry specific exemptions will be introduced.

Taxation of partnerships in the UK

Most Private Equity funds include partnerships somewhere in their structure. Although for most relevant UK tax purposes the partnership is treated as tax transparent the tax rules associated with how profits should be shared should be important to many Private Equity managers.