Rachel Reeves exempts PE bosses from top UK tax rate to compromise on ‘loophole’

Unlock Editor’s Digest for free

Roula Khalaf, FT Editor, picks her favorite stories in this weekly newsletter.

Rachel Reeves, the UK chancellor, is not expected to hit private equity bosses with a top tax rate of 45p in this month’s Budget, as she seeks a compromise the deal to close tax “loopholes” does not cause investors to leave the UK.

Reeves told the Financial Times ahead of an international investment summit in London next week – attended by around 250 major investors – that she would not be “ideological” about taxing the rich.

Senior government insiders say she is looking for a “compromise” on taxing private equity bosses, aimed at raising money but not to the extent of jeopardizing their competitiveness. He was harmed.

“We are approaching this responsibly and we need to ensure that we do not reduce investment in the UK,” Reeves told the FT. an interview on Friday.

Private equity managers are paid partly through carried interest, meaning they receive a portion of the investment returns generated by their funds if they achieve returns above a certain level.

In the UK, this is taxed as capital gains at 28% rather than as income, which attracts the top tax rate of 45% plus national insurance.

One government insider noted that Labour’s manifesto only committed Reeves to closing tax loopholes, not the full 45% tax rate. Another said: “There will be compromise on this issue.”

Labour’s election program said: “Private equity is the only industry where performance-related pay is considered capital gains. Labor will plug this loophole.” The party had intended to raise £565m a year from taking such action and had advised the industry on the matter.

prime minister told the FT in JuneAhead of the election, Labor will continue UK tax incentives for private equity executives in cases where fund managers put their own capital at risk.

However, she said UK private equity bosses were currently investing only “small” sums of their own capital, adding that this was “lower than what many countries other requirements” to qualify for tax incentives.

Michael Moore, chief executive of the British Private Equity and Venture Capital Association, said it was important that any new scheme be “internationally competitive”.

Industry sources say if the current 28% tax rate on effective interest rates rises above the “low 30s”, the UK could start losing out to other jurisdictions including the US, Italy, Spain or France.

The Treasury declined to comment on the issue of tax speculation but said: “We are committed to reforming the tax treatment of carried interest, bringing fairness to this area of ​​the tax system while also recognizing recognize the important role our world-leading asset management industry plays in transforming investment.” across the UK.”

Reeves and Sir Keir Starmer, the prime minister, will roll out the red carpet for investors at the summit in London on October 14, but are under pressure to reassure guests that the Budget on October 30 won’t cause them to have to raise big taxes.

Some business figures have criticized the timing of the event. The absence of Blackstone’s Stephen Schwarzman and JPMorgan Chase’s Jamie Dimon has led to speculation that something might be wrong.

But people close to the event say it is “completely oversubscribed” and CEOs are being turned away. Expected attendees will include Goldman Sachs chief David Solomon, former Google CEO Eric Schmidt, Larry Fink, chairman and CEO of BlackRock, and Helge Lund, chairman of Novo Nordisk.

“Heathrow will have to expand their VIP area in mid-October to accommodate the number of high net worth people arriving in the country that week,” Reeves said. We are really excited about the caliber of people and the amount of money they manage.”

A person familiar with the preparations said the airport is getting ready to welcome a large number of travelers through VIP suites. That will require more staff than usual and consistent amounts of food and drink.

Meanwhile, the Treasury denied a report in the Observer that Reeves could delay ending tax breaks for private schools. “It will take effect on January 1 as planned,” the spokesman said.