UK private equity professionals will lose £188k each under a Labour Government
If you’re in the UK, you might be reading this on your way to, or have just posted, your ballot.
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Regardless of who you actually want to win the election, it’s pretty obvious to everyone that the Labour Party, led by Sir Kier Starmer, will win. What this will mean for financial services professionals varies, but there’s one group that definitely won’t be happy: people in private equity.
The Labour Party, in its manifesto, has made it clear that it intends to abolish the beneficial tax rate of 28% for income generated via carried interest, one of the key pillars of private equity compensation. Most other high earners in the UK pay tax of 45% for earnings over £150k.
The proceeds of this, according to Labour, will net the country an additional £565m in tax revenue, which is, obviously, a lot of money – especially given how small private equity is as an employer in the UK as a whole.
HM Revenue and Customs, the UK body responsible for tax collection, estimated earlier this year that there were “around 3,000” people who paid tax on carried interest in 2021-22 tax year. Assuming that number hasn’t changed substantially since then, the implication is that the average carried interest earner will see an average tax bill increase of £188k ($240k).
Carried interest is a portion of the proceeds generated from a successful private equity deal that is paid to the team that worked on the deal. The lion’s share of these proceeds go to the top dogs in the team – principals, managing directors, and partners – but some funds also pay carried interest to more junior members of the team.
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