Labour plots crackdown on private equity tax loophole
Labour will crack down on private equity bosses by closing tax loopholes on their bonuses if victorious at the next election.
Shadow chancellor Rachel Reeves will today say that by ending the carried interest loophole, the government could raise another £440m in tax revenues.
Carried interest payments are given as bonuses to private equity bosses and are taxed at the rate of capital gains tax as they invest some of their own money into the fund.
Critics say it that is often a very small investment that can be funded by low-risk loans.
Around 2,000 private equity professionals received £2.3bn in carried interest in 2017, according to data from the University of Warwick and the London School of Economics, which equates to £170,000 in tax savings for each person.
Reeves told the Financial Times these payouts should be taxed at the level of income tax and not at the lower rate of capital gains tax.
“Instead of hitting working people and businesses with tax rises, we should be spreading the burden and creating a fairer system,” she said.
Reeves said 60 per cent of major retailers that had entered administration over the past 10 years, such as HMV and Toys R Us, were linked to private equity in an attack on the sector.
The UK has seen record levels of private equity buyouts so far this year, with retailer Morrisons one of the highest profile takeover targets.
The amount of buyout activity has sparked concern from some about the potential for US raiders to asset strip British companies and leave thousands out of work.
There have also been national security concerns over takeover bids for defence firms Meggitt and Ultra Electronics.
Chancellor Rishi Sunak last week said buyout activity should be encouraged and that is a “a sign of confidence in the UK economy”.
“If international investors, whoever they are, are keen to invest their capital in the UK, that is something that is good news for our economy. And that’s what you’re seeing,” he said.