Private Equity Sector Anticipates Compromise with UK Chancellor on Carried Interest Tax.

Private equity executives are optimistic that UK Chancellor Rachel Reeves will not fully eliminate their favorable tax treatment on carried interest in her upcoming Budget. They expect a moderate increase in the tax rate and some reclassification of carried interest as income, but believe they have avoided a complete overhaul of the current system.

This development follows an intensive lobbying campaign by the private equity industry, highlighting the tension between Labour's goals of raising taxes and attracting international investment. The British Private Equity & Venture Capital Association (BVCA) led efforts to improve the industry's image and engage with politicians, including organizing visits to PE-backed companies.

The lobbying strategy emphasized the risk of losing competitive edge and driving financiers away from London if carried interest taxation becomes too harsh. This approach seems to have resonated with Reeves, who has indicated a need for a "responsible" approach that doesn't reduce investment in Britain.

While some change to the carried interest tax regime is expected, the extent remains uncertain until the Budget announcement. The outcome will be closely watched, as it impacts a significant amount of money – in 2023, £1.8bn of carried interest was shared among just 100 private equity executives.

Report by Financial Times