Private equity tax: possible tax-planning options

Private equity fund managers and partners might wish to explore the following options following the introduction of the 50{e68217344b855fcd608ed2c4c41f83644da7cd41ea524fbfa2ad06c632d3255d} income tax rate from April 2010 on earnings above £150,000:

  1. Bring forward or “accelerate” the receipt of salary, bonus, dividends and other form of remuneration into the 2009/2010 tax year instead of taking these in the following tax year.
  2. Convert your corporate entity into an LLP as there is no national insurance on “members ” or “partners” drawings achieving a saving of almost 13{e68217344b855fcd608ed2c4c41f83644da7cd41ea524fbfa2ad06c632d3255d} on equivalent salary or bonus.
  3. Consider personal investments where tax relief is available e.g. gift aid, VCT, EIS, debt investments, etc.
  4. Consider “dual” employment contracts – for UK duties and separate overseas duties.  However, great care in structuring these contracts is required so all of HMRC guidance criteria are met.
  5. Consider a “double LLP” structure with the GP as an LP or LLP which is paid the annual management fee by the fund. The UK Advisor is a separate LLP.  The Advisor’s fee is just sufficient to fund its running costs and “reasonable” profit shares to members. 
  6. Instead of “individual” LLP members use “corporate” LLP members.  The corporate LLP members pay tax at 28{e68217344b855fcd608ed2c4c41f83644da7cd41ea524fbfa2ad06c632d3255d} (main corporate tax rate) or even the small companies rate, currently 21{e68217344b855fcd608ed2c4c41f83644da7cd41ea524fbfa2ad06c632d3255d}, if profits are under a certain amount.
  7. Non-doms can increase return through shares in an offshore General Partner (GP) and using the remittance basis of taxation for extracting of profits from the offshore company.
  8. Employee Benefit Trusts and  Unapproved pension plans, appropriately structured, can also be used in tax planning for private equity clients.
  9. Re-location to friendlier tax regimes such as Switzerland can be the final option for some.

RKG Consulting will be pleased to provide further information regarding any of the above or more tax planning options available to private equity and hedge fund managers following the introduction of the 50{e68217344b855fcd608ed2c4c41f83644da7cd41ea524fbfa2ad06c632d3255d} tax rate in the UK.