From GoodLaw:
https://goodlawproject.org/update/win-private-equity-managers-could-face-420m-annual-bill-after-legal-challenge/In May, we took legal action with the founder of Ecotricity, Dale Vince, to force the UK tax authorities to admit that some private equity fund managers have been paying tax at the wrong rate for more than 35 years.
Since 1987, HMRC has taxed the money that managers receive from private equity funds as capital gains – at a rate of 28% – instead of as trading income, which is taxed at 47%. This has seen Government losing hundreds of millions of pounds a year – enough to pay the salaries of more than 10,000 nurses.
We argued that this practice was unlawful in the case of buyout funds, which buy mature companies with borrowed money, use the company’s assets and income to pay off the debt, then sell them on.
HMRC has now conceded the key argument we raised, accepting that the money that managers receive from buyout funds – known in the trade as their “carried interest” – “would be taxable as trading income in the hands of UK tax resident individuals. HMRC would expect such individuals to file their self-assessment returns accordingly.”
Since buyout funds make up around 70% of the private equity industry, this would net the Government a further £420m a year in tax.
Our director Jo Maugham, also a leading tax KC, said: “Private equity fund managers have been grossly undertaxed since 1987, not because of the law but because of the political pressure put on HMRC by Government. This stance could be easily reversed, without any change in legislation, and should be. I hope a future Government takes that step.”
We’re thrilled to have achieved this win with Dale Vince and are grateful for the support of Phil White from Patriotic Millionaires, who helped to fund the legal counsel we needed. We’re also thankful to Dan Neidle at Tax Policy Associates, whose research sparked the idea for this legal action.
We’re especially grateful to our supporters who donated to this challenge. We’re not going to stop using the law to create a fairer, greener, better future for the UK – but we can only do it with your help.
Help us keep up the fight
Thank you,
Good Law Project Team