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Investing in PE and UK tax

george4064
Posts: 2,923 Forumite


If I were to make a commitment to a Private Equity fund and hold in a GIA, what tax would I have to pay (if any) on the distributions the fund will make?
"If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes” Warren Buffett
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The same as any other investment so CGT or income tax depending how it fits with your other income and investments.Remember the saying: if it looks too good to be true it almost certainly is.0
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jimjames said:The same as any other investment so CGT or income tax depending how it fits with your other income and investments.
Does anyone know if my understanding is correct?
Also, I know there are exemptions from certain CGT and income taxes with investments. Would a Buyout PE fund qualify for any of these?"If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes” Warren Buffett
Save £12k in 2025 - #024 £1,450 / £15,000 (9%)0 -
george4064 said:jimjames said:The same as any other investment so CGT or income tax depending how it fits with your other income and investments.
Does anyone know if my understanding is correct?
Also, I know there are exemptions from certain CGT and income taxes with investments. Would a Buyout PE fund qualify for any of these?1 -
george4064 said:jimjames said:The same as any other investment so CGT or income tax depending how it fits with your other income and investments.1
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It's a UK/European mid-market Buyout Fund, so I doubt portfolio companies will be paying dividends and distributions will only be made after an exit."If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes” Warren Buffett
Save £12k in 2025 - #024 £1,450 / £15,000 (9%)0 -
george4064 said:It's a UK/European mid-market Buyout Fund, so I doubt portfolio companies will be paying dividends and distributions will only be made after an exit.2
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wmb194 said:george4064 said:It's a UK/European mid-market Buyout Fund, so I doubt portfolio companies will be paying dividends and distributions will only be made after an exit.
The Buyout fund hasn't launched yet, but there have been previous vintages."If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes” Warren Buffett
Save £12k in 2025 - #024 £1,450 / £15,000 (9%)0 -
george4064 said:wmb194 said:george4064 said:It's a UK/European mid-market Buyout Fund, so I doubt portfolio companies will be paying dividends and distributions will only be made after an exit.
The Buyout fund hasn't launched yet, but there have been previous vintages.1 -
[Deleted User] said:george4064 said:If I were to make a commitment to a Private Equity fund and hold in a GIA, what tax would I have to pay (if any) on the distributions the fund will make?
To invest in a typical PE fund you'd normally make contributions to an LP (e.g. an English LP). The LP would invest in equity and shareholder loans in the companies it invests in. The LP is transparent for UK tax and so you are taxed on what happens below the LP rather than what cash you get. So you are not taxed on money distributed to you, but things that happened that led to that money being capable of being paid to you.
From a tax perspective, you would effectively get a combination of (i) a tax-free return of your contribution (e.g. following a refinancing and which would not taxable), (ii) interest (e.g. paid on the shareholder loan and taxable), (iii) dividends (e.g. on preference shares that receive a dividend and taxable), and (iv) capital gains (e.g. on disposal of equity).
You are likely to also have dry tax charges (e.g. because UK tax is due when income and gain arise, not when distributed (e.g. because there's ascertainable deferred consideration), and also because income is used to pay expenses that aren't deductible). It gets more complicated when, for example, the underlying investments are outside the UK (e.g. there may be some more dry foreign tax charges, some foreign tax credits, etc).
If you are an employee/member who gets carry then it's complicated. But it's basically taxed on the higher of (i) as described above or, (ii) at the 18%28% CGT rate or income tax plus NIC rates (depending on whether your investment is an ERS and the weighted average holding period).0 -
wmb194 said:[Deleted User] said:george4064 said:If I were to make a commitment to a Private Equity fund and hold in a GIA, what tax would I have to pay (if any) on the distributions the fund will make?
To invest in a typical PE fund you'd normally make contributions to an LP (e.g. an English LP). The LP would invest in equity and shareholder loans in the companies it invests in. The LP is transparent for UK tax and so you are taxed on what happens below the LP rather than what cash you get. So you are not taxed on money distributed to you, but things that happened that led to that money being capable of being paid to you.
From a tax perspective, you would effectively get a combination of (i) a tax-free return of your contribution (e.g. following a refinancing and which would not taxable), (ii) interest (e.g. paid on the shareholder loan and taxable), (iii) dividends (e.g. on preference shares that receive a dividend and taxable), and (iv) capital gains (e.g. on disposal of equity).
You are likely to also have dry tax charges (e.g. because UK tax is due when income and gain arise, not when distributed (e.g. because there's ascertainable deferred consideration), and also because income is used to pay expenses that aren't deductible). It gets more complicated when, for example, the underlying investments are outside the UK (e.g. there may be some more dry foreign tax charges, some foreign tax credits, etc).
If you are an employee/member who gets carry then it's complicated. But it's basically taxed on the higher of (i) as described above or, (ii) at the 18%28% CGT rate or income tax plus NIC rates (depending on whether your investment is an ERS and the weighted average holding period)."If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes” Warren Buffett
Save £12k in 2025 - #024 £1,450 / £15,000 (9%)0
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