The UK prime minister Gordon Brown has pledged to close any tax loophole enjoyed by private equity after the results of an impending review of the industry, according to media reports.
Speaking at the Labour Party Conference in Bournemouth, Brown said: “Whenever there’s a loophole that shouldn’t exist, we take action.”
“Sometimes it’s very difficult to do so because you’ve got lawyers and accountants who are always trying to find these loopholes. But on this issue of private equity, I can assure you we will take action.”
The “loophole” which has excited media and union ire is capital gains tax relief for private equity executives on carried interest, allowing executives to pay as little as 10 percent tax. The chairman of SVG Capital Nick Ferguson famously told the UK newspaper Financial Times the tax breaks enjoyed by executives allowed them “to pay less tax than a cleaner.”
However, Brown’s successor at the Treasury, Alastair Darling, warned in July sudden changes to carried interest relief or the tax treatment of non-UK-domiciled individuals may have unintended consequences. “I think we should be very, very wary indeed of a knee-jerk reaction,” Darling said.
The review of the legal treatment of private equity by the UK Parliament’s Treasury Select Committee is due to be published in the run up to the Treasury’s pre-budget report. Brown told the conference: “We will deal with the issue when it comes to the pre-budget report.”
The BVCA, the UK private equity industry association, recently warned in its pre-budget submission of “dire consequences” if the Treasury meddled with the treatment of carry.