(Bloomberg) -- Britain’s Chancellor of the Exchequer Rachel Reeves still intends to close a tax break for private equity, but is reviewing her approach to maximize the revenue raised, according to a person familiar with her thinking.
Britain’s Labour government wants to close a loophole on carried interest — fund managers’ portion of profits on asset sales — but internal Treasury analysis shows that could end up costing the exchequer money, said the person, asking not to be identified as the matter hasn’t been made public. Reeves always planned to look at the detail of the policy when she was in office, so the review does not constitute a U-turn, the person said.
Under the current rules, carried interest is taxed at the 28% capital gains rate, rather than at the top income tax rate of 45%. Labour had said the change would raise £560 million ($734 million). However, the Times reported earlier that it could eventually cost the exchequer as much as £350 million a year, citing Treasury analysis that the proposal could trigger an exodus of private equity executives.
The chancellor is preparing to unveil her first budget since Labour gained office and has warned of tough choices as the country grapples with a huge debt pile, stretched public services and elevated tax rates. While the private equity industry will welcome signs that the Treasury is rethinking the policy, it casts doubt on one of Reeves’ few tools to raise revenue.
Labour has pledged not to increase a number of big revenue-raising taxes, including income tax and VAT, and has instead been exploring a series of tweaks to investment rules to generate more funds.
Reeves is reportedly already considering watering down proposed changes to Britain’s so-called non-dom regime after a furious backlash.
©2024 Bloomberg L.P.