London private equity professionals foresee a way of avoiding Labour's tax plans

efinancialcareers.com:

Working in private equity is notoriouslylucrative, but as governments globally look for ways of raising additional tax, it stands to become less so in the future.

Get Morning Coffee  ☕  in your inbox. Sign up here.

At issue is the way that carried interest is taxed. Historically, it's been taxed as capital gains. In the future, it may be taxed as income. Britain's new Labour government is leading the charge: it thinks it can raise an additional £188k ($240k) per highly paid private equity professional by tweaking the tax system in this way. It's currently asking for submissions from the private equity industry and is suggesting that a change will be implemented in the budget on 30 October.

Private equity professionals in the City seem relatively unconcerned. Junior and mid-level private equity professionals whose net earnings stand to be most affected over their careers, but who mostly don't receive carried interest yet anyway, say that they're ok to pay more tax while predicting that firms will also find a way to avoid it.

«Most young people in private equity aren't strictly opposed to paying more tax, and we can see the rationale of this change,» says one experienced associate in London. «We just wish that public finances were used more effectively.» A principal at one large fund in London, says he's more interested in stable UK politics and sound public finances than minimizing personal taxation. Stability and soundness will lead to, «greater foreign direct investment, stable currency, greater private markets (therefore PE investments), greater UK listings, all good for UK businesses and economy,» he observes.

A hypothetical openness to higher tax may, however, remain just that. As the government comes for carried