Private equity to 'do a Lewis' and quit UK over tax

Simon Walker, chief executive of the British Private Equity and Venture Capital Association (BVCA), has warned that growing resentment of government tax changes could cause as many as 100 buyout firms to quit Britain for tax havens abroad.

Last week, Chancellor Alistair Darling made a partial U-turn on the botched changes introduced in last year's pre-Budget report, including concessions for smaller venture capital firms.

But he held firm on his decision to scrap taper relief incentives, a move that has drawn widespread criticism.

Mr Walker said the rise in capital gains tax (CGT) from 10 to 18 per cent, which comes into effect in April, was being seized upon by countries keen to lure companies to their jurisdictions.

He added that he was aware of an increased number of approaches from Swiss tax authorities to London-based private equity firms.

"Just as Lewis Hamilton made his private arrangements on tax, some cantons are now targeting our firms and directors to move their headquarters to Switzerland. With them may go many of the investors they bring to the UK, and that's not a comfortable thought."

Mr Walker added that he knew at least two of the UK's largest private equity firms were considering such a move. Industry executives suggested Apax was one of these firms, but the group would not comment. Executives at Bridgepoint, Permira and Cinven also said they were aware of approaches by Swiss cantons to their companies and other private equity firms.

By relocating to Switzerland, private equity firms and individual directors could benefit from the country's "forfeit tax" laws. The system allows companies and individuals to strike a deal, usually based on the rental value of property assets, to pay a flat fee in tax each year that would equate to a fraction of the CGT to be levied in Britain

Mr Walker believes the UK's tax regime has become one of the biggest threats to the City's pre-eminent status in Europe. "These proposals will make the UK only the fourth-most competitive environment for private equity in Europe, behind places like Ireland and France."