Buzz Archive:
PE Buzz: Interest on Private Equity Debt: Deductible (Conditionally) in UK

by SJ Berwin, 8/9/2007

As cash hungry U.S. legislators talk about raising taxes on carried interest, our friends in the Private Equity business in the U.K. seem focused on other issues. Similar to the U.S. markets, the private equity industry in the EU has faced the full glare of the media spotlight, particularly in the UK - and much of this has been unsympathetic.

Unfortunately, the press has often compounded the negative image propagated by trade unions by repeating inaccurate assertions about the tax treatment of private equity. In particular, they have focused on shareholder debt - finance provided by investors by way of loan rather than equity - which was mentioned in an important speech recently. In fact, that speech - by the UK's Economic Secretary to the Treasury, Ed Balls - was actually very good news: it confirmed that the ability to deduct interest on loans taken out for business purposes from taxable profits is regarded as an industry norm, not only in the UK but internationally, and it confirmed that that principle is not under scrutiny in Britain.