Labour plans to close the Carried Interest Loophole

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As expected, the Labour Manifesto has confirmed that it will close the ‘loophole’ on carried interest.

The manifesto states that, “Private Equity is the only industry where performance related pay is treated as a capital gain. Labour will close this loophole.”

This means that the current tax rate of 28% paid on private equity gains could be removed and taxed at up to 45%. While there are no details of how this will work in the manifesto, this potentially would give the UK one of highest rates on carried interest in Europe where rates in other jurisdictions are between 26% and 30%:


An exceptional tax on high income may also be payable at the rate of (up to) 4%




(taxed as employment income with 40% exempt) effective rate 28.5%


(taxed as employment income with 50% reduction in rate) 27%

Please note the amount set out above are for Carried Interest meeting the definition in each jurisdiction. If there is non-qualifying carried interest this would be taxed at a higher rate.

As shown above, even in some jurisdictions where carried interest is treated as employment income, there is a substantial discount to bring the effective rate in line with the more typical rate.

It was reported in the Financial Times on 14 June that, “Some Labour Insiders say that a compromise rate between 28% and 45% could be found” and that “Reeves has told colleagues she will consult on the private equity crackdown and is confident from her talks with the sector that there will be ‘no exodus’ from the UK, according to Labour officials.”

There is nothing in the manifesto to set out how this could potentially work and what we are left with is a stark statement that closing the Carried Interest loophole will raise £565m.

Given this and the proposed changes to the non-domiciled regime, many in the private equity industry will be seriously considering a move away from the UK and if Labour truly want to stop this they need to engage with the industry and provide some reassurance on these proposals.

If you are likely to be affected by these changes we would recommend seeking early advice on the implications and options going forward.

For further information about this article, please contact Stephen Kenny