Labour’s Plans to Close “Carrying Interest” Private Equity Sector Loophole Leading to Potential Exodus

Labour’s plans to close the “carrying interest” private equity sector loophole has sparked concerns among private equity managers and firms in the UK, with many considering a move abroad to countries with more favorable tax regimes. The proposed changes to tax law by the new Labour government could have significant implications for the private equity sector in the UK.

The new chancellor, Rachel Reeves, aims to close a tax loophole that allows private equity fund managers to pay a lower capital gains tax rate of 28% on all profits earned, rather than the usual income tax rate of 45%. This change could impact the economics of the industry, as private equity managers often invest their own money alongside businesses and entrepreneurs into funds, with the expectation of receiving a large payout once the fund is successful.

The potential shift in tax law has raised concerns about the ability to attract new talent into the industry and retain established managers and funds. Some private equity managers have already started exploring options to set up shop in countries like Spain, Italy, Switzerland, and Portugal, where tax systems are more favorable.

In addition to the private equity sector, Labour has also targeted other industries, such as oil and gas, with plans to ramp up clean energy initiatives in the UK. The Green Prosperity Plan aims to deliver clean power by 2030, funded in part by a windfall tax on oil and gas giants.

Overall, the proposed changes by Labour could have far-reaching effects on the private equity sector and other industries in the UK. It remains to be seen how these changes will impact the economy and business landscape in the coming years.