The head of one of Britain’s best-known law firms has warned that Rachel Reeves’ alleged plan to increase taxes on limited liability partnerships (LLPs) could drive professionals and entrepreneurs out of the UK, undermining London’s status as a global business hub.
James Libson, managing partner of Mishcon de Reya, said proposals to align LLP taxation more closely with standard employment rules risk penalizing professionals who take business risks and contribute significantly to the economy.
“Most people who use LLPs are middle class and upper middle income,” Libson said. “This means that the attractiveness of life here is decreasing. I’m not talking about millionaires or billionaires – ordinary people will look for opportunities to work elsewhere.”
The Chancellor is reportedly considering measures that would increase the overall tax burden on partnerships after reports senior Treasury officials estimate the reforms could raise up to £1.9 billion by aligning LLPs with employers’ national insurance contributions.
However, Libson described the potential changes as “dangerous and potentially destructive” and warned they would increase the brain drain in Britain as rival financial and legal centers become increasingly competitive.
“To equate partners and investors who are employees through LLP structures is to sell the offer in entirely the wrong way,” he said. “The reason the system works is because these are people investing in their business – they are taking risks, they are investing capital.”
The Treasury has declined to confirm or deny that LLPs will be targeted in the November 26 budget, although sources told the Financial Times that any increases would be “less severe” than initially feared and could include exemptions for partners earning below a certain threshold.
Introduced in 2001, the LLP structure allows professionals to operate as partners rather than employees, providing both flexibility and tax efficiency. According to Companies House, there are now more than 50,000 LLPs in the UK across legal, accounting, architecture, consultancy and other professional services.
Critics argue the system gives high earners an unfair advantage, but supporters say it underpins one of Britain’s most globally competitive sectors. A report from the London School of Economics found that the top 0.1% of taxpayers earned almost half of all partnership income in 2020.
Libson insists the perception of LLPs as tax havens for the super-rich is misleading. “These are not hedge fund billionaires,” he said. “They are professionals at building practices, employing hundreds of people and ensuring the UK remains competitive in legal and advisory services.”
Mishcon de Reya – founded in 1937 and known for representing Princess Diana in her divorce from the then Prince of Wales – reported sales of £332m and pre-tax profits of £111m last year. The law firm now employs more than 1,400 people, including 650 lawyers.
Reflecting a broader trend among professional services firms, Mishcon has recently opened offices in Dubai and Abu Dhabi. It joins rivals Addleshaw Goddard and Simmons & Simmons in expanding into the Gulf region, where less stringent regulations and tax advantages are attracting international talent.
“With the strategies we pursue – private wealth, innovation, disputes – (the UAE) is an absolute hub,” Libson said. “We increasingly feel that the appeal of London has waned while other focal points around the world are growing.”
Libson said Mishcon’s immigration practices had led to a significant increase in brain drain to the Middle East – a reflection, he argued, of growing frustration with the UK’s tax and regulatory environment.
“From our own internal barometer we have seen very heavy traffic into the Gulf,” he said.
The warning comes as economists estimate Britain’s top earners now contribute more than 30% of all income tax revenue, making their mobility a key financial risk.
Libson added that while the government’s industrial strategy rightly highlights professional services as a growth priority, measures aimed at partnerships would send the opposite message.
“London is still the greatest city in the world – but as always it is about execution, productivity and cutting the bureaucracy that holds us back,” he said. “Other countries do it really well.”
Mishcon de Reya’s board recently appointed Dame Alison Rose, former chief executive of NatWest, as non-executive chair, building on her advisory work in the areas of diversity and inclusion. Libson praised her appointment as a signal of the company’s long-term vision.
“Alison is one of the most impressive people I have ever worked with,” he said. “Our pursuit of diversity has never been a symbolic act – it’s about creating an environment where people want to work. It’s a business decision more than anything else.”
With the budget just weeks away, city leaders remain concerned about the extent of Reeves’ proposed tax increases. For firms like Mishcon de Reya, the outcome could determine whether London remains the beating heart of global professional services – or whether, as Libson warns, “ordinary people” start following their wealthier clients abroad.
