Private Equity Boss Fires Tax Salvo Across UK Government's Bows

by Robert Lee, Tax-News.com, London

20 March 2008

The boss of one of the UK's largest private equity firms was expected to warn the government on Wednesday that its plans to increase the rate of capital gains tax on the industry, and tax non-domiciles could prompt global firms to review their operations in the UK - his included.

According to the Financial Times, Guy Hands, the founder of Terra Firma, which owns EMI and the Odeon/UCI cinema chain, was expected to state in the firm's annual review that recent UK government tax policy has made the country an increasingly unattractive place in which to invest, and that the company may explore plans to move at least part of its operations to other jurisdictions, most probably in Europe.

“Recent developments in UK policy may well drive global firms and highly skilled individuals away from London at significant cost to the UK economy in terms of lost revenues and lost taxes,” Hands reportedly observed in the review.

The Terra Firma boss was referring to tax changes confirmed by Chancellor Alistair Darling in his recent budget, which entailed the removal of the 10% lower rate of capital gains tax for most investors to be replaced by a flat 18% rate, and the commencement of a GBP30,000 charge on non-domiciled residents present in the UK for seven or more years in return for not paying tax on their offshore income. Both measures are due to be introduced from April.

“Such trends in UK taxation, making the UK a less competitive financial centre than it was, have caused us to review our UK activities and may result in future growth being pursued through our other European offices,” Hands observed.

However, in a report published by the UK's Times newspaper, a Terra Firma spokesman was quoted as stating that "there is absolutely no plan to move our main operations".

“This is about reviewing the expansion of our overseas operations in response to the tax changes," the spokesman told the Times.

Since 1994, Terra Firma has invested approximately EUR11bn, mainly in Europe. The company has offices in London, Frankfurt and Guernsey, owns eight companies and claims to have paid GBP15.2mn in corporation tax last year.

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