The UK Chancellor George Osborne said on March 16 that he was presenting “a budget for working people”. If you’re one of the “working people” in the City, here are the key measures that are targeted at you.
Private equity’s ability to cut tax bills with debt is being curtailed. Changes to the tax deductability of debt is, as expected, likely to have a significant impact on the companies that private equity firms own and ultimately on how private equity firms structure deals. Over five years, this could raise up to £4 billion, according to government projections.
Asset managers with funds focused on short-term investing are going to be whacked for up to £210 million in tax. Documents published with the Budget give a figure for how much will be raised by the previously-announced policy of classing asset managers’ pay as income, instead of capital gains, if they hold investments for less than three years. In the 2017/2018 tax year, this measure is projected to bring in an extra £210 million in tax from fund managers before falling sharply in subsequent years.
More broadly, carried interest is under pressure. In effect, the Chancellor has created a special tax rate for carried interest. Capital gains tax is being cut from 28% to 20% but gains from carry will attract an 8% surcharge. Not only will this mean that financial execs who earn carry will get no tax cut, it will allow a future chancellor to squeeze those who benefit from carry without affecting other capital gains tax payers.
Banks’ ability to offset losses from the crash against tax is to be cut further. The maximum tax relief will be cut from 50% to 25%, costing banks £330 million in the coming tax year and £520 million in the 2017/2018 tax year.