Tackling Some Token Gesture Tax Issues Will Not End The Egregious Inequality Built Into The UK Tax System

7th June 2023

The Good Law Project issued a press release this morning saying, "Good Law Project and Dale Vince, founder of Ecotricity, have launched a legal challenge against HM Revenue and Customs demanding the closure of a loophole which allows private equity fund managers to pay almost half the tax they should".

Back in 1987 the private equity industry successfully lobbied the Inland Revenue, now HMRC, to pay less tax. Their success meant that the money made by executive managers is classed as ‘capital gains' and not ‘trading income' - instead of paying a tax bill of around 40% that figure dropped considerably to 28%.*

Good Law Project, working with leading tax lawyer Dan Neidle, believe the agreement was unlawful. For years, people have been arguing the so-called ‘carried interest' loophole should be abolished. New research suggests it never existed at all as HMRC isn't allowed to give sweetheart deals.

I wish them well, Dan Neidle knows his tax law. So does Jo Maugham. They clearly think that they have a chance. And this is an egregious loophole.

But, before we get too excited by this, or Rachel Reeves' obsession with the same issue (and the non-dom law, on which both Jo Maugham and I have advised Labour in our time) let's remember that egregious as these issues are, they are also small fry in terms of revenue impact and so inequality.

The big issue with regard to capital gains tax is not that it is what is used to tax carried interests in hedge funds but that it is taxed at half the rate of income, when I think all incoming pounds to a person should be taxed at the same rate.

And the other deeply annoying aspect of capital gains is that they suffer no national insurance, saving at least 15% and more in some cases when employer's contributions are also taken into account.

Those are the big tax issues to get worked up about in the tax system and its bias to wealth. But Labour is not talking about doing anything about these issues. In fact, it has confirmed its commitment to low CGT rates and so a bias towards wealth.

I want all loopholes to be closed. But we really should concentrate on the big issues and not the token gestures and Labour is far too good at tokenism.

Posted on June 6 2023 by Richard Murphy on his blog

The email from the Good Law Project on 6 June 2023
Together with Dale Vince, founder of Ecotricity, we are launching a legal challenge against HMRC to close the private equity tax loophole.

If private equity were to be taxed properly, HMRC could collect an estimated £600 million more in revenue each year from just a couple of thousand people.

Close the tax loophole]/b]
Despite Britain being in the midst of a brutal cost of living crisis, some of the richest in society are failing to hand over their fair share of tax, thanks to a sweetheart deal between HM Revenue and Customs and private equity fund managers.

In 1987, representatives of the private equity industry successfully lobbied the Inland Revenue, now HMRC, to pay less tax. As a result, instead of paying a tax bill of 47%, private equity fund managers pay 28%.

[b][url=https://actions.goodlawproject.org/private_equity]Over 70,000 people have already signed the petition to right this wrong[/url]

Help us bring this case to close the loophole and to ensure everyone contributes the right amount into the public purse!