Proposals to change the way that private equity is taxed in the UK could seriously inhibit the growth of small firms, it has been claimed.
Private investor syndicate Hotbed said that the amount of growth capital available to small businesses would be seriously depleted if the government introduces tougher rules for private equity tax relief.
Last week prime minister Gordon Brown announced that he wanted to close all ‘tax loopholes’ available to private equity investors in his pre-budget report, which may be published this month.
The government is currently looking at extending the period before which investors qualify for tax (taper) relief from two to five years, and increasing the base rate at which business assets are taxed from 10% to 20%.
Such a change would come at an extremely bad time for small firms, Hotbed argued, on top of the ‘credit market crunch, which has seen banks increasingly pulling out of private equity deals and becoming more conservative with lending’.
Gary Robins, CEO of Hotbed, said: “This is the wrong thing to do, in the wrong market, at absolutely the wrong time.
“Taper relief was put in place to encourage investment in unlisted securities. It is the rewards available because of a low tax rate that encourage high net worth investors to back entrepreneurs trying to set up and grow businesses and create jobs.”
Robins said that investors would turn their attentions overseas in search of more favourable tax climates.
He added: “Entrepreneurs could also find that they have fewer bidders and end up parting with a significant portion of their companies for far less than they should have.”
© Crimson Business Ltd. 2007
