Study: UK firms fear tax threat most

Private equity firms in the UK feel that potential changes to the way capital gains are taxed could endanger the country’s position as an industry hub.

As the UK goes to the polls to vote for the next government, private equity practitioners in the country consider proposed changes to the tax regime as posing the largest threat to the UK’s attractiveness as a base for their firms, according to a survey by the private equity partner and fund finance team at banking group Investec.

UK taxes: Keeping
GPs awake at night

A potential increase in the rate of capital gains tax was regarded as the most significant threat, followed by the rate of tax levied on carried interest, said the survey of 92 UK-based private equity practitioners.

The EU’s proposed directive on the regulation of alternative investments ranked third.

“The next government must take very seriously the risk posed to the UK’s position as a hub for the private equity industry,” said Investec’s Simon Hamilton in a statement.  “Punitive levels of taxation could soon drive these talented individuals overseas, which could undermine a potential pillar of future economic growth.”

Among the tax measures proposed by the various political parties, a hike in the tax on capital gains in the Liberal Democrat manifesto has proved the least palatable to the UK’s private equity industry. It proposes taxing CGT at the same level as income tax.  This could effectively mean a rise from 18 percent to 50 percent.

Simon Walker, chief executive of the British Private Equity and Venture Capital Association, described the proposal as “completely dotty”. It would, he said, “lead to lower tax revenues as transactions would be put on hold, and it would send a very negative message internationally about the UK as a place in which to base and grow a business.”