UK's summer budget hits carried interest taxation

As of yesterday, the Treasury has removed deductions on capital gains tax charged to private equity partners on carried interest. This means individuals will now be charged the full rate of capital gains, which currently stands at 28%.

According to the Treasury, the change will affect "several thousand individuals in private equity firms".

Essentially, the Treasury has removed the base cost shift relief, which had previously allowed those working in private equity firms to offset costs in the partnership against carried interest tax liabilities. The base cost shift was agreed to in 1987 and has been an important feature of the UK private equity market.

The UK industry association BVCA published a short reaction to the change, in which it said it "will work with HM Treasury and HMRC to achieve the smooth, sensible and simple implementation of the changes that the chancellor has introduced in respect to the private equity sector and carried interest especially".

Following the new measures, the Treasury expects to raise between £265-390m each year over the next five years, thanks to the higher rate of capital gains tax on carried interest.

The new measures have seen a new chapter added to the Taxation of Chargeable Gains Act 1992; chapter 5 contains new rules relating to how carried interest in taxed.

In May, unquote" predicted that following the election, private equity might be at risk of higher taxes as the new majority Conservative government sought ways to plug the deficit.

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• Topics
• UK / Ireland
• Regulation
• UK Budget
• United Kingdom
• BVCA
• tax