CGT let-off gets a cheer from private equity sector

There was relief across the private equity industry tonight that the widely predicted rise in capital gains tax did not appear.

Many people had forecast that the Chancellor was poised to raise the rate from its current 18% to as much as 25% or even 30%

This followed strong criticism that many in the private equity industry and other areas of the City had been choosing to make their money from long-term growth in equity values rather than as income or straight cash bonuses. This ensured they paid 18% tax on the vast part of their earnings rather than the top rate of 40% of income tax.

That led to Nicholas Ferguson, former chairman of private equity investment firm SVG Capital, boasting that many people he knew in the industry were paying less tax than his cleaner.

Andrew Robinson, director of accountants Grant Thornton said: "This is good news not just for people who work in private equity but also for other people who can be paid in shares in order to take advantage of the lower rate of capital gains tax."

Experts had warned that raising CGT levels could have several unintended consequences, most notably reducing incentives for entrepreneurs to set up new businesses or for wealthy backers to invest in them.