The Government is committed to tackling tax avoidance and evasion at all levels to ensure everyone pays the right tax at the right time. Avoidance (and evasion) damages the effectiveness of the tax system and imposes additional costs on all taxpayers
This loophole is part of the capital gains system and was agreed by the last Labour Government. It allowed private equity firms to treat their profits as capital gains when there is capital at risk. I welcome this move which will ensure that fund managers cannot use tax planning to avoid paying the appropriate amount of capital gains tax on “carried interest”. It is correct for the Government to treat carried interest as a capital gain, and not income, as it reflects the underlying long term performance of a fund’s investments.
The Government has taken action to increase tax on private equity by raising the rate of capital gains tax from 18 per cent to 28 per cent. This tax increase also means that hedge fund managers no longer pay less tax than their cleaners – a situation the last Labour Government did nothing about in 13 years in office. Beyond this, the Government has taken other actions to tackle aggressive tax avoidance and tax evasion of both large companies and individuals. It has led the world on changing international tax rules and is implementing those changes in Britain.
I agree with those who argue that the tax system needs to be fair. The Government will therefore continue to address imbalances in the system where some individuals and businesses benefit disproportionately from certain rules – and will also continue to tackle avoidance, evasion, non-compliance and tax planning. They have gone further on tackling tax avoidance and evasion than any previous Government, closing more of the loopholes it inherited.
Building on this, the Government will introduce a new criminal offence that removes the need to prove intent for the most serious cases of failing to declare offshore income and gains and will will increase civil penalties for deliberate offshore tax evasion. New penalties were recently announced to enhance the General Anti-Abuse Rule, with action taken on disguised remuneration schemes and stamp duty avoidance.
Alongside the measures above targeting individuals who avoid tax, the Government is cracking down on all forms of tax evasion and avoidance, and aggressive tax planning and non-compliance. There should be a level playing field for the majority who pay their tax, and everyone should make their contribution. I am pleased that during the last Parliament, HMRC secured £100 billion in additional tax revenue..