U.K. elections could mean a big tax bill for private equity
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U.K. private equity and venture capital investors are girding themselves for a dour July 4th, when British voters are expected to barbecue the Conservative Party for the first time in 14 years.
The big picture: Labour Party leaders have pledged to eliminate the favorable tax treatment of carried interest, thus raising the figure to 45% from 28%.
- In short, they argue that carried interest is a fee for service rather than a capital gain, since the PE executives themselves don't put money at risk (GP contributions would be excluded).
- Labour estimates that the move would generate £565 million in extra tax revenue per year by fiscal 2028, although that number number may shrink if investors flee the country.
Catch up quick: Carried interest tax fights are old hat in the U.S., although they always end up with private equity scoring a knockout blow.
- Presidents Obama, Trump, and Biden all campaigned on changing the tax treatment of carried interest, but none got it done.
- A big difference in the U.K., however, is that the country in 2015 created a special tax category for carried interest — thus making it easier for politicians to target.
By the numbers: U.K.-based funds raised nearly £60 billion in fund capital last year, while private capital investments in U.K. businesses topped £20 billion, per the BVCA.
- PE-backed M&A for U.K. companies is up more than 68% so far this year, making it the busiest YTD period since 2021, according to LSEG.
The bottom line: If July 4th goes as expected, British VC and PE pros are likely to get taxation with representation.
