Autumn Budget 2024: Reeves increases taxes on private equity profit
The Chancellor Rachel Reeves confirmed she would raise taxes on the profit made by private equity dealmakers today but stepped back from the full-scale raid feared by some corners of the industry.
In her maiden Budget, Reeves said the government would lift the levy to 32 per cent from April next year, up from the current rate of 28 per cent.
Carried interest – or carry – is the personal profit reaped by dealmakers from the sale of assets from a fund. The charge has long been regarded as a “loophole” by many outside the industry as it is taxed far lower than the top rate of income tax at 45 per cent.
Laying out the government’s fiscal plans, Reeves said the fund management industry “provides a vital contribution to our economy” but there “needs to be a fairer approach to the way carried interest is taxed”.
“So we will increase the Capital Gains Tax rates on carried interest to 32 per cent from April 2025 and – from April 2026 – we will deliver further reforms to ensure that the specific rules for carried interest are simpler, fairer and better targeted,” she added.
According to Budget documents released after the Chancellor’s speech, the changes will raise around £300m for the Treasury and carry will be absorbed into the UK’s income tax system, meaning it will be subject to national insurance charges.
While the rate has been pushed up, it is well below the worst case scenario for the industry. Many had feared the charge would be equalised with the top rate of income tax at 45 per cent.
Reeves has also previously suggested there will be allowances for dealmakers that commit their own personal capital to funds.
Michael Moore, chief executive of the British Private Equity and Venture Capital Association (BVCA), said there should now be a “resolute focus on international competitiveness” as the government fleshes out the details of the plans.
“What matters to us as an industry, is that the overall climate in the UK attracts international talent and capital, so that we can put to work on the behalf of the UK,” he told City PM.
Labour committed to ramping up the rate of tax on carry in its manifesto but the party has softened its tack after a fierce lobbying effort from the industry and warnings of an exodus of senior dealmakers to lower tax jurisdictions.
Pushing the rate as high as 45 per cent would have made the UK’s tax treatment of carry among the most punitive of any of its competitor countries.
However, the 32 per cent charge will make it the second highest rate in Europe after France. In the US, carry is taxed at 34.7 per cent.
London-based family office Parabellum Investments said today the four per cent rise “still keeps the UK in competition with other international financial hubs”.
| Country | Carried interest tax rate |
| Spain | 22.8 |
| New York | 34.7 |
| Germany | 28.5 |
| Italy | 26 |
| France | 34 |
After opening a consultation on the plans over the summer, the government was warned that a punishing tax grab risked pushing private equity dealmakers overseas.
“Global competition for private capital and inward investment is extremely fierce,” the BVCA, wrote in its submission to the consultation in August.
“Any changes to the tax treatment of carried interest in the UK will be viewed in light of the carried interest tax regimes in key competitor jurisdictions, such as the US, France, Italy, Germany and others.”
The tax on carry is relatively small as a revenue raiser but has been a thorny issue politically. Labour has been trying to allay criticism of the lower rate as a “loophole” for City dealmakers while appearing open to business for international financiers.
Reeves previous comments had unsettled some in the run up to the described the treatment of carry as a “tax break” that was giving executives favourable treatment as they “asset-strip some of our most valued businesses”.