UK’s top PE execs earned £2.7bn in carried interest in 2020

Carried interest earned by a group 255 of the UK's top private equity dealmakers, totalled £2.7 billion in the 2020-2021 tax year, according to a report by The Financial Times, quoting deal analysis by law firm Macfarlanes.

The revelation comes as politicians are threatening to look at overhauling the tax system for the sector with 'carried interest' currently treated as a capital gain in the UK rather than earnings, meaning that a rate of 28 per cent is paid rather than the 45 per cent top rate of income tax.

The £2.7 billion accounted for about 80% of all carried interest — the slice of profits PE execs make on successful deals — in the 2020 to 2021 tax year, according to Macfarlanes.

With private equity firms having spent nearly £80 billion taking companies private over the past vive years, the report cites tax campaigner and former Clifford Chance lawyer Dan Neidle as estimating that the UK tax authority is currently missing out on about £600 million a year by taxing carried interest as a capital gain.