FirstFT: Labour donor challenges HMRC over private equity ‘tax loophole’

We have a scoop today on a Labour party donor who is planning to challenge Britain’s tax authority over the way it taxes private equity profits.

Lawyers for Dale Vince, founder of UK renewable energy company Ecotricity, have sent a “pre-action protocol” letter to HM Revenue & Customs saying they intend to seek a judicial review of its approach to the private equity sector, according to a copy of the letter seen by the Financial Times.

The letter argues the UK’s stance on taxing carried interest is “potentially unlawful”. It claims HMRC has failed to apply the letter of the law and incorrectly based their approach on a lobbying agreement between the treasury and industry dating back to the 1980s.

Vince told the FT: “It’s a very big sum of money being gifted to some very wealthy people in our country through a tax loophole that’s being handed out by HMRC . . . it just seems wrong.”

The planned legal action is the latest twist in a long-running debate over the tax treatment of so-called carried interest, the share of profit buyout fund managers typically receive from asset sales. Such payments are currently taxed as capital gains, rather than at the higher rate of ordinary income.

The payments dealmakers can individually earn from successful deals can run into the tens of millions. In the tax year 2020-21, a group of just 255 of the UK’s top private equity executives earned £2.7bn in carried interest. 

Here’s what else I’m keeping tabs on today:

• Sunak goes to Washington: The UK premier will meet US president Joe Biden during a two-day visit in which he hopes to prove that Britain remains an important player on the world stage.

• Economic data: The EU and UK have monthly retail sales figures, while S&P releases its construction purchasing managers’ index for Britain. The World Bank publishes its summer Global Economic Prospects report.

• Emmanuel Macron: France’s leader visits Normandy on the 79th anniversary of D-Day and then heads to Potsdam for dinner with German chancellor Olaf Scholz to discuss this month’s European Council meeting and next month’s Nato summit.

Five more top stories

1. Apple revealed its long-awaited “mixed reality” headset yesterday in its most anticipated product release since the iPad in 2010. The tech giant’s shares rose to an all-time high ahead of the announcement. Here’s what the $3,499 Vision Pro can do.

2. About half of large multinationals are planning to cut office space in the next three years, according to a survey of executives in charge of real estate at 350 companies, as they adapt to the rise of homeworking since the pandemic. Read more from the study by Knight Frank.

3. More consolidation across the investment banking sector is expected if a dealmaking slump caused by higher interest rates and the banking turmoil continues. Bankers foresee more boutiques and brokers being picked off by bigger players.

4. The CBI struggled yesterday to win public backing from leading UK companies on the eve of a crucial vote of confidence. The group has been pushed to the brink of collapse by allegations of sexual and other serious misconduct. Read more on the proposed leadership and governance changes up for vote today.

5. Ukraine’s forces have stepped up attacks on multiple Russian positions in the east of the country, but officials refused to say whether the uptick of activity amounted to the start of a full-blown counter-offensive. Read more about the manoeuvres in Donetsk province.

The Big Read

With Labour now consistently more than 15 percentage points ahead in opinion polls, the UK opposition party’s agenda for a future government is coming under close scrutiny in the run-up to next year’s expected election. Senior figures led by Sir Keir Starmer are piecing together a manifesto that represents a striking shift in the way the economy is run, despite its soothing, pro-business rhetoric.

We’re also reading . . . 

Chart of the day

Fear of missing out on a market rally driven by artificial intelligence is pushing retail investors to increase their exposure to technology stocks, with net purchases of US equities by individual investors hitting a three-month high of $1.5bn on May 30 and 31.

Take a break from the news

Go on a wild ride to South America’s northern tip with travel writer Ruaridh Nicoll, who documents an extraordinary journey through Colombia’s Guajira peninsula, a smuggler’s desert of snaking paths and ancient laws.

Additional contributions by Gordon Smith and Benjamin Wilhelm