Private equity firms prepare for reorganization ahead of autumn budget

Private equity firms are bracing for big changes ahead of the autumn budget as Labour targets the bonuses of buyout barons.

Finance Minister Rachel Reeves is expected to announce that executives will have to pay a higher tax rate on their income.

Labour’s consultation on how carried interest – the portion of investment income shared by fund managers – will be taxed concluded yesterday.

Sir Keir Starmer has pledged to plug the “private equity hole” that saw tax levied on interest at 28 percent rather than the higher income tax bracket of 45 percent.

It comes as Labour scrambles to plug a so-called £22 billion “black hole” in Britain’s finances.

According to the government, increasing the tax on carried interest could raise an additional £565 million a year.

However, City experts warned that a tax hike could discourage investment in the UK and prompt private equity bosses to relocate to places such as Milan.

A change could have a knock-on effect for banks, law firms and consultants active in London’s private equity sector.

The sector has been lobbying the government on the issue. Ultra-rich Britons have also been spooked by possible increases in capital gains tax and inheritance tax in the October 30 budget.

Mike Hinchliffe, head of private equity at law firm Addleshaw Goddard, said: ‘The risk of talent flight is very real. We are seeing and hearing evidence that UK private equity fund managers are seriously considering investing in other jurisdictions.’