The Quiet Parts of the UK Budget

Why you should read this. The UK published its Budget on October 28, 2026. The bank surcharge doubles, and tax on interest and rent rises to a top rate of 49%. Carried interest, LLPs, and the regime for new UK arrivals were left alone. The changes that will reach a U.S. manager’s desk sit further back, in a consultation paper and a policy response. This alert walks through four of them and asks one question: who should comment before the UK writes the final rules?

Myron Scholes taught a generation of us that “the taxing authority is an uninvited party to all contracts.” The UK Budget shows that party rewriting its terms in two places most headlines missed. Both matter to U.S. managers, to families with people in London, and to the sovereign investors in their funds.

The headlines first. Banks carry the heaviest load. The bank surcharge doubles from 3% to 6% from January 2027 through March 2028, taking their combined rate to 31%. A rule announced in May also makes the foreign-branch exemption compulsory for accounting periods starting on or after January 1, 2027, so overseas branch losses can no longer shelter UK profits. Savers and landlords pay too. From April 2027, tax on interest and rent rises another two points, to a top rate of 49%. Dividend rates, the main capital gains rates, carried interest, LLPs, and the regime for new UK arrivals were left alone. Bank shares rose and gilts held steady. Dan Neidle and his team at Tax Policy Associates had the sharpest same-day read, and we recommend it.

01  U.S. LLCs get a fix with fine print

For years, UK-resident members of U.S. LLCs have faced effective tax rates that sometimes exceed 75%, because HMRC treats the LLC as a company while the IRS taxes the member directly. The government now plans to write HMRC’s treatment into law and give individual members an elective credit for U.S. federal, state, and local tax, claimable from early 2028.

The catch sits in four words: the credit covers tax “paid by them personally.” Many management companies have made state pass-through entity tax elections, and New York City’s UBT is levied on the entity. A London partner may find that the U.S. tax that matters most does not count. The relief also covers individuals only (not trusts, companies, or partnerships), and the government is still “considering practical options” for past years. Anyone who filed relying on the Anson decision remains exposed. Raise it in the promised technical consultation.

02  Sovereign money gets nudged from equity to debt

From January 1, 2029, sovereign wealth funds and foreign governments lose their unwritten UK exemption and pay tax on UK property income and gains (state pension funds keep their exemption on gains). UK interest stays exempt. Read the two together: a sovereign that lends against London real estate stays tax-free; one that owns it directly does not.

Real estate debt and private credit managers with sovereign LPs gain a quiet edge, and equity managers should expect side-letter requests for REIT, QAHC, or corporate feeders. The widely reported 15% rate applies only to REIT property income distributions, not to all income and gains. Nor does the consultation squarely address a sovereign investing as a limited partner. Comments close on January 20, 2027; that is the time to ask.

03  Income versus capital now carries a 25-point price

An additional-rate taxpayer will pay 49% on interest and rent, 39.35% on dividends, and 24% on gains. Expect more interest in accumulation structures, corporate ownership of let property, and anything else that turns income into gain. Expect HMRC to look harder at all three; its new plan for wealthy taxpayers promises 400 more specialists on offshore non-compliance by 2030.

For U.S. citizens in London, the extra two points are close to a pure cost. UK tax on interest and rent already exceeded the top U.S. federal rate for higher- and additional-rate payers, so the increase mostly adds foreign tax credits the U.S. return is unlikely to use.

04  One change is already live

A new inheritance tax rule on trust liabilities applies to deaths and other chargeable events from Budget day. Debts funded with a beneficiary’s own money no longer reduce the trust’s charge, so family offices should review loans from beneficiaries to trustees now.

Our take

The UK did not raise much tax this week; Tax Policy Associates puts this Budget’s share of the rise at about £6 billion by 2030-31. It did something more lasting. In both the LLC and the sovereign changes, the Treasury took a practice that lived in guidance and HMRC habit and began writing it into statute. Statute is harder to argue with and easier to plan around. The window to shape it is short: January 20 for sovereigns, and the coming technical consultation for LLCs.

Selected research and primary authorities

HM Treasury, Budget 2026 (Red Book), October 28, 2026, including the bank surcharge and the U.S. LLC and sovereign measures. HM Treasury, Budget 2026: Overview of Tax Legislation and Rates and Annex A, Rates and Allowances, October 28, 2026. HM Treasury and HMRC, UK-resident individual members of LLCs and other reverse hybrids: summary of responses, October 28, 2026. HM Treasury and HMRC, Modernising the taxation of foreign sovereign investments, consultation, October 28, 2026; comments close January 20, 2027. HM Treasury, Budget 2026 Policy Costings, October 28, 2026.

Tax Policy Associates (Dan Neidle), “Budget 2026: what it means,” October 28, 2026, taxpolicy.org.uk. The best same-day analysis we read. Mishcon de Reya, Autumn Budget 2026, October 28, 2026 (source for the 400 compliance specialists figure).

Important notes

This alert reflects documents published on Budget day. Draft legislation has not yet been published, and the LLC and sovereign measures remain subject to consultation. The point on state pass-through entity taxes and New York City’s UBT is our reading of the government’s wording; the response does not address either tax. Market moves reflect same-day press reports.

This client alert is for general information only. It is not tax, legal, investment, or accounting advice. Consult your own advisers about your particular circumstances before acting on any matter discussed here. Questions: Carlos Schmidt, CPA, La Presa Partners LLC, carlos@lapresallc.com, (917) 558-6393.

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This alert is for general information only and is not tax, legal, investment, or accounting advice. Consult your own advisers before acting. Carlos A. Schmidt, MBT, MBA, CPA · carlos@lapresallc.com · (917) 558-6393.