Private equity sector faces potential tax hikes in UK
Politicians in the UK have threatened to raise taxes on the private equity sector after an analysis by law firm Macfarlanes showed that the UK’s wealthiest private equity executives earned £2.7bn ($3.7bn) in carry interest in one year, with the booty accounting for around 80% of all brought interest on successful deals in the 2020-2021 fiscal year. Carried interest is a significant part of compensation for private equity executives, often exceeding the size of their salaries. Tax treatment of carried interest has been under debate in several countries, including the US. In the UK, where private equity has spent nearly £80bn privatizing public companies over the past five years, the interest brought in is taxed as a capital gain, meaning a 28% rate is paid rather than the top 45% rate of income tax. Labour has planned a £440m ($610m) tax raid on industry should it win the next general election.
US debt ceiling vote possible
The US House rules committee gave the green light for a bipartisan agreement to raise the lending limit to go forward, which could happen today if successful. Meanwhile, France and Germany are reporting May’s inflation data, and the US Beige Book on economic conditions is due to be published.
Other news:
Western countries continue pressure on Turkey to admit Sweden into NATO, believing that a new anti-terrorism law that comes into effect tomorrow provides the “last part” of a deal to secure Ankara’s agreement to the country’s entry into the military alliance.
Around half of the $1.4tn US junk loan market is still tied to LIBOR a month before the rate expires, meaning corporate borrowers and facilitating institutions have a critical moment to avoid automatically resorting to potentially disadvantageous loan terms.
Russia’s President Putin has promised retaliation against Ukrainian drone strikes on Moscow, which he claims happened yesterday morning.
Personal air purifiers become headphones
Dyson has combined miniature air purifiers with noise-cancelling headphones in a new invention. The personal air purifiers are the latest in gadgets for those on the go with owner Rhodri Marsden calling them “bizarre”.
Deep dive:
Fearing the potential for conflict in Asia, Western firms are exploring production options outside Taiwan, which has become an essential location to manufacture everything from smartphones to fighter jets. Moving away from the self-governed island could come at a steep price for producers.
Summary:
Politicians threaten to raise taxes on the private equity sector in the UK following an analysis that reveals the wealthiest private equity executives earned £2.7bn in carry interest in just one year. Carried interest is a significant part of compensation for private equity executives, often exceeding the size of their salaries. In other news, a US bipartisan vote could raise the lending limit, and France and Germany are reporting inflation data. Around half of the $1.4tn US junk loan market is still tied to LIBOR a month before the rate expires, while Russia’s President Putin promises retaliation against Ukrainian drone strikes on Moscow. Dyson’s latest invention incorporates personal air purifiers with noise-cancelling headphones. Western firms are exploring production options outside Taiwan, which has become a vital location to manufacture everything from smartphones to fighter jets, amid fears of potential conflict in Asia.
Additional piece:
The news that politicians are threatening to hike taxes on the private equity sector has caused consternation amongst executive insiders, many of whom see the move as a further attack on what is already perceived as a heavily taxed industry. The announcement comes at a time when private equity is facing increasing scrutiny from lawmakers globally, amid calls for greater regulatory oversight and transparency, particularly with respect to ESG concerns.
Private equity executives have long argued that carried interest should be taxed as a capital gain, arguing that they take significant risks on their investments and should be incentivized to make profitable deals. Critics, on the other hand, argue that carried interest is, in reality, just a way to avoid paying income tax, enabling private equity executives to make huge sums of money while paying a far lower rate of tax than most ordinary taxpayers.
The move by the UK Labor Party to raise taxes on the industry if it wins the next general election has sparked concern amongst executives, many of whom have already been feeling the pressure from regulators and lawmakers who are determined to clamp down on perceived abuses in the sector.
However, despite the potential threats, many private equity firms are still able to generate significant returns for investors, and there is still a lot of interest in the sector from traditional asset managers, endowments, and other large institutional investors. Over the past few years, we’ve seen many traditional asset managers enter the private equity sector, either by launching their funds or investing directly in existing funds.
As private equity continues to grow globally, it will be increasingly important for firms to navigate the changing regulatory landscape while still generating significant returns for investors. The move by the UK Labor Party to raise taxes on the industry is just the latest in a series of challenges facing private equity, underscoring the need for firms to remain nimble and adaptable in the face of change.
—————————————————-
| Article | Link |
|---|---|
| UK Artful Impressions | Premiere Etsy Store |
| Sponsored Content | View |
| 90’s Rock Band Review | View |
| Ted Lasso’s MacBook Guide | View |
| Nature’s Secret to More Energy | View |
| Ancient Recipe for Weight Loss | View |
| MacBook Air i3 vs i5 | View |
| You Need a VPN in 2023 – Liberty Shield | View |
This article is an on-site version of ours FirstFT news bulletin. Subscribe to our Asia, Europe/Africa OR Americas edition to receive it directly in your inbox every weekday morning
Today’s main story is about a type of gain that has attracted the attention of politicians who threaten to raise taxes on the private equity sector.
A group of 255 of the UK’s leading private equity players it earned £2.7 billion in carry interest in just one year, according to an analysis by law firm Macfarlanes. The booty accounted for about 80% of all brought interest — the chunk of profits private equity executives get on successful deals — in the 2020-2021 fiscal year.
Carried interest is a large part of compensation for private equity executives, often dwarfing the size of their salaries if they close successful deals. Its tax treatment has long been a matter of debate in several countries, including the United States.
In the UK, where private equity has spent nearly £80bn privatizing public companies over the past five years, the interest brought in is taxed as a capital gain. This means that a rate of 28% is paid rather than the top 45% rate of income tax.
The UK Labor Party has planned a £440 million tax raid on industry if it is elected at the next general election.
Here’s what else I’m keeping an eye on today:
-
US debt ceiling: A vote on a bipartisan agreement to raise the lending limit could happen as early as today after the House rules committee last night the bill was brought forward a little.
-
Economic data: Canada, Italy and Turkey report Q1 gross domestic product data, and Germany and France report May inflation data. The US Federal Reserve publishes its Beige Book on economic conditions.
-
Markets: The UK FTSE Index holds its quarterly review. Bloomsbury Publishing, B&M European Value Retail, Nordstrom and Salesforce report the findings.
Five more top stories
1. Western countries are increasing pressure on Turkey to admit Sweden into NATO, with the Swedish prime minister writing in the Financial Times that a new anti-terrorism law that comes into effect tomorrow provides the “last part” of an agreement to secure Ankara’s support for its entry into the military alliance.
2. About half of the $1.4 trillion US junk loan market is still pegged to Libor only 30 days before the rate expires. Corporate borrowers and the institutions that facilitate their switch to the substitute benchmark face a critical juncture to avoid automatically resorting to potentially less favorable loan terms. Read the full story.
3. A senior Federal Reserve official said there were “no compelling reasons” to wait for another interest rate hike should economic data confirm that more needs to be done to keep US inflation in check. Read the FT’s interview with Cleveland Fed Chair Loretta Mester.
4. Exclusive: Labor to ban former ministers from lobbying UK government for at least five years after leaving office and fine violators as the opposition party finalizes its general election agenda. Find out more about Labor leader Sir Keir Starmer’s attempt to ‘clean up Westminster’.
5. Vladimir Putin has vowed to retaliate against what he claims are Ukrainian drone strikes on Moscow. The Russian president accused Kiev of “terrorist activity” and provoking a “tit for tat” response afterward strikes yesterday morning in residential areas of the Russian capital.
Deep dive
Fearing a potential conflict in Asia, Western firms are looking to move production out of Taiwan, but moving away from the self-governed island will come at a steep price for producers. To explore how Taiwan has become an indispensable economy to produce everything from Chinese smartphones to US fighter jets in this visual story.
We are also reading. . .
Chart of the day
Inflation in Spain it fell more than expected to 2.9 percentthe lowest level in nearly two years, fueling hopes that price pressures would quickly ease across the eurozone.
Take a break from the news
Dyson’s latest invention radically combines a miniature air purifier with noise canceling headphones. Rhodri Marsden tries out the bizarre device and… other gadgets for those on the go in this week’s HTSI.
Additional contributions from Darren Dodd and Emily Goldberg
https://www.ft.com/content/0ad48d03-6f33-44f4-bf69-4b2c611fe715
—————————————————-