The UK is also addressing carried interest. Their approach is simply to raise the capital gains rate to 28%; as in the US, the private equity firms are threatening to expatriate. They won’t.
In its inaugural stab at reining in one of the highest deficits in the world, the U.K.’s new coalition government said it would raise capital gains tax, which taxes profit made by individuals on property and assets, by 10% to 28% with effect from Wednesday. The tax is payable on profit above GBP10,000 a year.
But the rise wasn’t as large as feared by many private equity executives who have to pay CGT on the carried interest, or the share of profits that fund managers receive as part of their compensation.
“It is a big increase but it could have been a lot worse–many were expecting a hike to 40% or even 50%,” said Caspar Noble, a partner in the tax group at Ernst & Young.