Following the recent analysis by Tax Policy Associates which suggested that the carried interest regime had no foundation in legislation, contending that private equity funds are trading rather than investing for tax purposes, the Good Law Project, led by Jo Maugham KC, is bringing a judicial review claim against HMRC, demanding closure of the ‘loophole’.
The essence of the case is that the carried interest regime is based on an agreement reached between the private equity industry and HMRC back in 1987 which has no basis in law (and which Good Law Project describes as a sweetheart deal), and that HMRC should simply apply the law – meaning that, where a private equity fund is trading, the carried interest should be taxed as income rather than capital.
The Financial Times published a ‘Lex opinion’ stating that private equity tax reform was ‘a job for MPs, not campaigners’ (6 June). The newspaper said that success in this case could have wide implications, with fund managers deciding to quit the UK for nearby countries which are more ‘hospitable’ – part of the original rationale for the 1987 agreement. Any change could also potentially affect tax exemptions for pension funds and charities which are based on their investment rather than trading activities (for example, if they are invested in private equity).
Politicians are likely to be taking note, with the Labour Party’s proposed increased spending on the NHS relying in part on funds raised through ‘closing tax loopholes for private equity fund managers’.
The British Private Equity & Venture Capital Association has yet to comment, although Macfarlanes had previously issued a response, ‘strongly disagreeing’ with the Tax Policy Associates analysis that private equity funds are trading for UK tax purposes.
Following the recent analysis by Tax Policy Associates which suggested that the carried interest regime had no foundation in legislation, contending that private equity funds are trading rather than investing for tax purposes, the Good Law Project, led by Jo Maugham KC, is bringing a judicial review claim against HMRC, demanding closure of the ‘loophole’.
The essence of the case is that the carried interest regime is based on an agreement reached between the private equity industry and HMRC back in 1987 which has no basis in law (and which Good Law Project describes as a sweetheart deal), and that HMRC should simply apply the law – meaning that, where a private equity fund is trading, the carried interest should be taxed as income rather than capital.
The Financial Times published a ‘Lex opinion’ stating that private equity tax reform was ‘a job for MPs, not campaigners’ (6 June). The newspaper said that success in this case could have wide implications, with fund managers deciding to quit the UK for nearby countries which are more ‘hospitable’ – part of the original rationale for the 1987 agreement. Any change could also potentially affect tax exemptions for pension funds and charities which are based on their investment rather than trading activities (for example, if they are invested in private equity).
Politicians are likely to be taking note, with the Labour Party’s proposed increased spending on the NHS relying in part on funds raised through ‘closing tax loopholes for private equity fund managers’.
The British Private Equity & Venture Capital Association has yet to comment, although Macfarlanes had previously issued a response, ‘strongly disagreeing’ with the Tax Policy Associates analysis that private equity funds are trading for UK tax purposes.
