UK hedge fund industry bemused over carried interest

UK budgetYesterday’s UK budget included a planned introduction of carried interest that will apply the full rate of capital gains tax to both the private equity and hedge fund industry.

The government will effectively apply the maximum 28% capital gains tax rate by removing any element of discretion over the sums eligible for carried interest taxation.

Jack Inglis, chief executive officer of the Alternative Investment Management Association, says he is disappointed to see hedge funds referenced in the budget in relation to carried interest.

“Active hedge fund strategies produce trading profits which managers receive as fees that are taxed as income at standard income tax rates - as we have said before - and not as capital gains,” he says.

The private equity industry seems to have anticipated the change to taxation. In April, legislation closed a loophole that allowed private equity firms to treat management fees as capital gains. They are now taxed as income.

Tim Hames, director general of the British Private Equity & Venture Capital Association (BVCA) says that it will work with tax authorities to achieve the smooth and simple implementation of the changes that the chancellor has introduced in respect to the private equity sector and carried interest.

“The BVCA is confident that the government appreciates the importance of ensuring that the UK remains Europe’s leading centre for fund management,” he says.

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