Edwards Gibson quoted in Financial Times article on Proposed Tax Reforms Impacting Law Firm Partnerships

Edwards Gibson is delighted that Edwards Gibson Director, Scott Gibson, has been quoted in the Financial Times article, “Rachel Reeves’ tax plan could benefit US law firms over UK rivals”, written by Suzi Ring, Ellesheva Kissin and Jim Pickard, which explores the potential impact of proposed tax reforms on law firm partnerships.

The article discusses Chancellor Rachel Reeves’ consideration of adding national insurance contributions (NICs) to the tax bills of partners in UK limited liability partnerships (LLPs). If implemented, the changes could disproportionately affect UK LLPs, handing a competitive advantage to US law firms operating in London that are structured as foreign LLPs.

Commenting on the implications of the proposed reforms, Scott Gibson notes:

“As ‘foreign LLPs’, a significant minority of US law firms already have an advantage over UK LLPs by virtue of their being exempt from the salaried member rules. This home turf disadvantage for UK LLPs would be dramatically magnified if the new proposals were applied in the same way.”

Whilst the broader implications of the proposals to tax UK LLP partners more heavily are already well known in law firm management circles — and are doubtless of great concern to individual partners who stand to take a considerable financial hit — in June, Edwards Gibson published an article highlighting a more obscure but critical point: the UK’s Salaried Member Rules already create a “home turf disadvantage” for UK LLPs compared to foreign LLPs, including some US law firm LLPs.

Prior to the recent government proposals, this issue has already begun to influence the London hiring market, particularly in light of the proliferation of two-tier partnerships among elite — and formerly all-equity — US law firms over the past two years.

If the new proposals are applied in the same way, this disparity will be dramatically magnified — potentially reshaping partner recruitment and compensation strategies across the sector.

Read the full Financial Times article here (paywall).

Read our ‘Freshfields’ Non-Share Home Turf Handicap’ article here.