How the 2026 carried interest reforms are reshaping tax, relocation, and matrimonial risk
Written by
Partners, Emily Brand, Rahul Thakrar and Dom Rothbarth outline how the 2026 reforms to the UK carried interest regime are set to reshape decision making for senior private equity executives.
From 6 April 2026, carried interest will be taxed as deemed trading profits, shifting from capital gains to income tax and resulting in an effective 34.1 per cent rate. This marks a significant departure from the longstanding 28 per cent capital gains treatment and brings the UK regime closer in substance to an income based model used in other jurisdictions. Combined with a hostile tax environment, this is expected to accelerate relocation from the UK, particularly for executives facing dry tax charges when carry is rolled into continuation vehicles. For internationally mobile executives, even a short period spent outside the UK before a realisation event may materially affect their UK tax exposure, increasing the incentive to move before a continuation transaction.
Continuation vehicles also intensify pressure on the timing and location of crystallisation. While they offer flexibility for sponsors and management, they often trigger tax charges on unrealised value, making overseas realisation increasingly attractive and compressing decision making for internationally mobile professionals. These vehicles are now a central feature of the private equity market, used to extend a fund’s life, retain exposure to prized assets and provide liquidity while refreshing incentive arrangements for management. However, their growing prevalence means the misalignment between economic rollover and fiscal crystallisation is sharper than ever, with executives having limited control over the timing of these tax points.
The Partners also highlight the personal and matrimonial risks tied to relocation and carry realisation. Moving abroad does not automatically remove English jurisdiction, and divorce proceedings can still be issued in England. Relocation can place strain on relationships, and English courts remain a favoured jurisdiction for the financially weaker spouse owing to their generous approach to financial provision.
Without a nuptial agreement, carried interest is shared under the A vs M formula, potentially tying ex-spouses together for years and compounding the impact of higher tax exposure. Recent case law, including the 2021, 2024 (No. 2) and 2024 (No. 3) decisions in A vs M, illustrates the increasing complexity and longevity of litigation involving PE assets, continuation vehicles and disputes over the marital portion of carried interest. Courts may also consider Duxbury‑style capitalisation of maintenance, which can be particularly challenging in PE contexts where liquidity is often delayed.
Continuation vehicles add fresh complexity, with growing calls for settlements to include rights to invest in successor structures. While such rights may offer upside, they also risk binding ex‑spouses into ongoing financial entanglement and triggering continuing disclosure obligations.
Overall, the reforms mean tax planning, relocation, and matrimonial protection now intersect more closely than ever. For many PE professionals, a nuptial agreement may be one of the most significant tools for managing long term financial risk. As the Partners note, without one, divorce may be the single most financially consequential event of a PE professional’s lifetime.
The full article was first published in FT Adviser in March 2026.
