Treasury to change PE tax rules

The UK Treasury is to make changes to the tax treatment of shareholder debt, but there will be no changes to deductions on carried interest or to treatment of non-domiciles.

Further details will be released by the government in the Pre-Budget Report in November, but the rules surrounding shareholder loans will be tightened. However, the changes to shareholder debt are not expected to be drastic and it is understood that no decision will be made pending a further review sometime in the future.

The announcement comes just weeks after the publication of the Treasury Select Committee’s report into private equity following a number of high-profile hearings with leading industry figures, trade union leaders and other financial experts.

The report recommended that the Treasury and HM Revenue and Customs launch an investigation as to whether the current tax system is unduly favouring private equity, and noted that the Treasury was already undertaking a review of “one specific aspect of the current rules that apply to the use of shareholder debt where it replaces the equity element in highly leveraged deals”.