Copy article

Ahead of Autumn Budget, Silicon Valley VC warns "we would simply stop hiring and investing in the UK" if there is not a "competitive tax code"

Journalist: John Choong (Head of Markets and Research), Newspage

ended 28. August 2024

If there is not "a competitive tax code" after the Autumn Budget, "we would simply stop hiring and investing in the UK”, one Silicon Valley-based venture capitalist, Aman Verjee, General Partner at Practical VC, has warned.

Aman Verjee, General Partner at Silicon Valley-based Practical VC, said: “If the UK wants to attract talented entrepreneurs, it has to have a competitive tax code. In the US and Canada, carried interest is taxed at less than 20%; in France, Germany, Italy and Spain it's 25%-30%. In countries like Singapore, UAE, and Switzerland, it's zero. If the UK went far above international norms, we would simply stop hiring and investing in the UK.”

For these, and other views, see below.

4 responses from the Newspage community

Copy all

Star Quote
Copy

Aman Verjee
General Partner at Practical VC
If the UK wants to attract talented entrepreneurs, it has to have a competitive tax code. In the US and Canada, carried interest is taxed at less than 20%; in France, Germany, Italy and Spain it's 25%-30%. In countries like Singapore, UAE, and Switzerland, it's zero. If the UK went far above international norms, we would simply stop hiring and investing in the UK. Taxes paid on capital gains and dividends constitute a double layer of taxation. By adding another layer of taxation at 45% on what’s left for shareholders, the returns to investors would be severely reduced, and that makes it a lot harder to invest in the kind of risky venture-backed innovation that has created all of the growth in our economy over the last 30 years. If taxes on 'carried interest' which is really the incentive-based pay for managers, are increased, managers have a lot less upside from 'getting it right' and would probably shy away from risky, high-return opportunities.
Star Quote
Copy

Ravi Longia
Partner – Head of Investment Funds at DWF Law
Hiking the tax on carried interest could have serious consequences for the UK economy. Approximately 3,000 people receive carried interest per year, so while it represents a small number of individuals, those affected include key people in private equity, venture capital and real estate funds, all of which play a critical role in the UK economy, including investing in many aspects of our economy, like infrastructure. There are concerns that a tax hike could deter investment or encourage managers to move to another jurisdiction with more favourable carried interest taxation rules. In saying this, DWF Investment Funds and Tax teams have been speaking to clients regarding alternative carry arrangements for compensating fund managers and their teams. There may be opportunities to preserve the capital nature of carried interest, but this will be subject to the outcome of the reforms.
Copy

Editor
Wes Wilkes
CEO at IronMarket Wealth
Bringing CGT in line with income tax would put the brakes on private equity's appetite for risk, as it directly impacts the earnings of fund managers. Carried interest, which is performance-based pay, becomes less attractive under higher taxes. This would, therefore, cause private equity managers to shy away from the bold investments that drive exponential returns. Such reluctance and a bigger tendency to play it safe could send shockwaves through the broader UK economy, given how crucial private equity is to the UK’s large financial services sector. The new government must tread carefully, as in targeting the risk-takers, they risk undermining their own growth ambitions in a key, dynamic market.
Copy

Editor
Gabriel McKeown
Head of Macroeconomics at Sad Rabbit - Substack Newsletter
As the UK braces itself for the Autumn Budget, a seismic shift could be on the horizon, with possible changes to CGT on the cards. By raising the upper band from 28% to 45%, aligning CGT with income tax would lead many investors to question why they should bet on a dark horse when the winnings are taxed away. This could stifle innovation and slow the flow of capital into emerging sectors, with investors favouring safer, lower-yield assets over volatile, high-return opportunities. Furthermore, the impact on the broader economy could be significant, with a CGT hike discouraging investment in small businesses. While investors appreciate that ‘you can't make an omelette without breaking a few eggs’, the omelette might never see the light of day if the eggs become too costly. The government's economic challenges are sizeable, however they must weigh the trade-offs between immediate fiscal needs and long-term economic vitality, as a tax hike today could be a growth gamble tomorrow.