Carried interest budget changes to bring £1.1bn to UK

The UK's latest budget has brought in changes to carried interest that will affect thousands of private equity firm workers and potentially bring £1.1bn into the UK economy over the next five years.

The UK government expects to receive £1.1bn ($1.6bn) in additional revenue over the next five years thanks to changes to the tax applied to carried interest.

 

Carried interest is the share of deal profits paid to executives at private equity and venture capital firms and taxed at the same 28% rate as capital gains tax.

However there are various means and methods to reducing the amount of tax paid. In the first budget set out by the UK's latest government these methods are to be removed and reduced. The measure will affect the tax treatment of all carried interest earned after July 8.

The tax authority, HM Revenues and Customs’ (HMRC), changes will affect thousands of people working in private equity firms across the UK and gain the country £1.1bn in additional tax over the coming five years. It is believed that the changes will bring in £265m starting in the 2016-2017 financial year rising to £390m in 2019-2020.

Tim Hames, director general of trade body British Private Equity and Venture Capital Association, said his organisation would work with the 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.”

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