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Private equity tax swoop may hit IFA firms

‘Taper relief has been tremendously successful in encouraging entrepreneurial spirit’

Advisers have warned that any Government moves to clamp down on private equity tax breaks must not attack the valuable business asset taper relief that has allowed IFA firms to flourish.

Positive Solutions chief executive Neil Johnson says he is concerned the controversy over the amount of tax paid by private equity firms may lead to an increase or removal of business asset taper relief across the board.

Johnson considers that the relief has helped adviser firms such as PosSol grow organically by offering staff incentives through share options that benefit from the taper relief.

Business asset taper relief allows employees to benefit from 10 per cent levels of capital gains tax, compared with 40 per cent, on assets such as unquoted share options as long as the assets are held for at least two years. After one year, the tax level is 20 per cent.

Private equity firms benefit from the relief as the profits from selling companies are classed as “carried interest” and are eligible for the same relief.

Johnson says: “My concern is that the law of unintended consequences may lead the Government to ruin one of the best ways of encouraging small businesses. This relief has been tremendously successful in encouraging entrepreneurial spirit in businesses such as IFAs and removing or lowering it would be a massive mistake that could severely damage the industry.”

There is a growing belief that the Government will act to increase tax levels in this area.

The Treasury select committee is currently conducting an inquiry into the private equity sector and the issue has been a high priority for Labour deputy leader candidates.

Last week, British Private Equity and Venture Capital Association chief executive Peter Linthwaite resigned after being criticised by members of the Treasury select committee and this week the committee hears evidence from a number of private equity companies.

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