PE set to sidestep US carry tax changes

Tax on carry is back in the spotlight and private equity managers are likely to escape a proposed overhaul, according to comments from US Treasury secretary Steve Mnuchin.

Private fund managers are unlikely to pay more tax on carried interest under reforms to be introduced by the Trump Administration.

Speaking at a New York conference on Tuesday, Treasury secretary Steve Mnuchin said the “carried interest deduction” would end under President Trump’s tax plan, but only for hedge funds.

Mnuchin had previously said the so-called “carried interest loophole” – which sees recipients pay the lower rated capital gains tax and not income tax on carry – will remain open to all but hedge funds because “the administration wants to encourage job creation.”

During his election campaign, Trump said he planned to tax carried interest at the higher income tax rate, and criticized Democratic nominee Hillary Clinton for failing to abolish it during her years in the US Senate.

However, the proposal appears to have been sidelined. January’s House Blueprint – which sets out potential changes to policy – suggested changes to taxing carried interest from “speculative investment partnerships” but was silent on other carried interest taxation.

A spokesman for the American Investment Council said it had seen “no indication” that Trump will eliminate the carried interest rate for private equity funds.

The change was expected to be introduced as part of wholesale tax reform the Administration said it would publish in September. This date has been since been pushed back, and Mnuchin said it is now aiming for the end of the year.