UK Chancellor Announces Capital Gains Tax and Carried Interest Changes

Team S · 2024-10-31T07:08:23.000Z

In the 2024 Budget, Chancellor Rachel Reeves has unveiled substantial changes to the Capital Gains Tax (CGT) structure, with notable implications for the private equity sector. The most significant alteration is the introduction of a new 32% single rate for carried interest, which affects approximately 3,100 individuals. Carried interest, typically paid as a performance or incentive fee in private equity or hedge fund arrangements, was previously subject to CGT rates of 28% or 18%, depending on the partner's marginal tax rate. This new rate, while higher than before, is lower than many had anticipated, as Labour had previously discussed closing a loophole that allowed carried interest to be taxed as capital gains rather than income. The Chancellor has also increased the main CGT rates: - For higher rate taxpayers: from 20% to 24% - For basic rate taxpayers: from 10% to 18% Michael Moore, chief executive of the British Equity and Venture Capital Association, welcomed the government's approach, stating that it recognizes the importance of the private capital industry to the UK economy. In line with previous Conservative policies, the Labour Government is working to boost DC pension investment in private markets. This initiative is expected to increase investments in private equity ventures, supported by changes to the DC default charge cap that exclude performance or incentive fees.

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UK Chancellor Announces Capital Gains Tax and Carried Interest Changes | Newnex