Bloomberg Tax quotes Dominic Lawrance on a UK ruling (Fowler v HMRC) that raises questions about the carried interest tax plan

The UK's initiative to impose taxes on the carried interest earnings of nonresident fund managers could face challenges due to a significant court decision concerning tax treaties and domestic law, according to tax experts. They refer to the UK Supreme Court's 2020 decision in Fowler v. HMRC, a case involving a South African diver, which may undermine His Majesty’s Revenue and Customs’ authority to tax these fund managers. Should a challenge be successful, international fund managers might be able to bypass UK taxation on activities conducted within the country.

The nonresident tax plan is part of HMRC’s proposal for revising its fundamental approach to taxation of carried interest, the share of investment profits fund managers receive as compensation. From April 2026, carried interest will be treated as trading profits, taxed at discounted effective income rates instead of capital gains, as it is currently. And fund managers based elsewhere will be drawn into the tax regime—raising treaty-related issues addressed in Fowler, according to professionals.

Dominic Lawrance, Private Client Partner, shares his thoughts with Bloomberg Tax:

I can very well see it being the root of a future case, which might take quite a long time to hit the courtrooms, because typically there’s a number of years of pre-litigation correspondence and wrangling before. And so, it’s conceivable that it could take 10 years for this issue to be resolved.

Read the full piece in Bloomberg Tax here (subscription required).