Private capital investors and fund managers in the United Kingdom and the European Union are preparing for a wave of tax policy changes and regulatory initiatives in 2026 that could materially affect investment returns, fund structures and cross-border activity.

In the UK, successive reforms to the taxation of carried interest will culminate in April 2026 with carried interest treated as income rather than capital gains, attracting higher rates and national insurance contributions under a revised framework; recent government concessions have limited some potential conditions, but the shift still marks a substantial change for private equity executives and fund professionals.

Domestic tax changes also include reduced tax incentives for Venture Capital Trusts and Enterprise Investment Schemes as relief rates fall, and expanded digital reporting obligations under the “Making Tax Digital” programme for landlords and self-employed individuals, highlighting the need for enhanced compliance infrastructure.

The UK’s broader tax environment is also being shaped by rising dividend tax rates and frozen income thresholds, which may influence capital allocation decisions across private capital portfolios.

Across the EU, 2026 will see progress on key tax initiatives within the European Commission’s 2026 Work Programme, including simplification of complex tax legislation via an omnibus package that aims to streamline interactions between compliance regimes and administrative cooperation rules.

The EU’s corporate tax architecture is also under review, with contentious proposals such as the unshell directive being withdrawn while a new digital VAT reporting regime — known as VAT in the Digital Age — continues its phased rollout, signalling a broader shift toward real-time tax transparency and reporting.

Investors should also be mindful of long-standing calls from industry bodies for standardised cross-border investment vehicles and withholding tax reforms to reduce friction between jurisdictions, although such measures remain at the proposal stage and vary by member state.

For private capital managers, these developments underscore the intersecting challenges of optimising tax positions and meeting evolving regulatory requirements.

The combined impact of UK carried interest reform, altered tax reliefs and new digital reporting obligations, alongside EU efforts to declutter tax rules and enhance administrative cooperation, means that strategic planning and robust compliance systems will be critical.

Funds and their advisers are increasingly focusing on tax-efficient structures and operational readiness as they seek to navigate shifting requirements while positioning for cross-border fundraising, investment and exit activity in 2026 and beyond.