Darling to pronounce on buyout taxes(4)

The UK Treasury is set to reveal its planned changes to the tax treatment of private equity later today. It is believed Chancellor of the Exchequer Alistair Darling will single out the industry in a bid for popularity.

The UK Chancellor of the Exchequer Alistair Darling is expected to single out private equity executives as a target in the pre-budget report today at 4.30 CET.

The UK Treasury is expected to reveal plans to change the capital gains tax relief enjoyed by private equity executives, allowing them to pay as little as 10 percent on carried interest. The UK newspaper Financial Times said the boundaries on income tax may be shifted to include more of the gains made by private equity managers.

However, one prominent UK buyout executive told PEO this was likely to be too complicated to implement without hitting entrepreneurs as well as buyout deal doers, so the Treasury was more inclined to find a way to tax the management fee paid by investors on funds under management.

The tax relief became a focus for critics of the industry after Nicholas Ferguson, chairman of UK fund of funds SVG Capital, said the regulations allowed highly paid private equity executives to pay “less tax than a cleaner.”

The FT also said the Treasury is expected to change the tax on shareholder debt in leveraged deals.

Changes to the private equity tax regime may be highlighted in the current budget as the ruling Labour Party is currently on the defensive politically. It is believed generally that strong action on the industry’s tax treatment would be a populist move. 

However, industry body the British Venture Capital Association warned in its submission to the pre-budget report that any change to tax would have “dire consequences”.

UK Prime Minister Gordon Brown backed away from a widely expected early election after the opposition Conservative Party performed well in an ICM poll of marginal seats.