UK private equity managers are bracing themselves for a renewed attack on their earnings.

The UK's HM Revenue & Customs is expected to publish the preliminary results of its latest industry review, which may include a change to capital gains tax levels or taper relief rules, said sources. The review, which is being conducted with the British Venture Capital Association, is looking at carried interest, or the share of profits that go to managers. Its initial findings, which may include the announcement of a more formal industry-wide consultation, could be published in December's pre-Budget report, according to industry sources. The review accompanies similar research being conducted elsewhere in Europe, including Germany. But the Revenue may find itself at odds with the UK Treasury, which will be wary of the prospect of buyout firms moving to locations with more favourable tax regimes and losing revenue. "There's a danger the government could end up cutting off its nose to spite its face," said one tax analyst. The move comes only months after the industry won respite from a Revenue attempt to increase taxes after it softened its stance on the treatment of managers' equity investments. The Revenue was threatening to treat some managers' profits as income, rather than capital gains, which would have increased the headline tax rate from 10% with taper relief to 40%. The effective tax rate has been estimated at about 7%, according to one analyst.