Darling set to tighten private equity tax regime

By Christina Fincher

LONDON (Reuters) - Chancellor Alistair Darling is set to tighten rules that allow private equity chiefs to pay less tax than many low-paid workers.

The changes, to be announced in the pre-Budget report, could see a doubling of the base rate of capital gains tax charged on business asset investments to 20 percent and a lengthening of the investment profile to qualify for taper relief, according to industry sources.

The eye-popping salaries of private equity chiefs were pushed into the public glare earlier this year following the buyout of household names such as pharmacy chain Alliance Boots.

"That matter is being looked into," Prime Minister Gordon Brown told the Labour Party's conference last month. "Whenever there is a loophole that shouldn't exist, we take action."

The government announced a review into the matter earlier in the year after unions lambasted buyout bosses for paying less tax than their cleaners while reaping millions of pounds from deals.

Instead of paying 40 percent income tax, buyout executives domiciled in Britain pay the lower rate of 10 percent applied to capital gains for business investments owned for at least two years.

The system of taper relief was put in place by the Labour government less than a decade ago as a way of encouraging investment but has become increasingly controversial.

Peter Taylor, managing partner at Duke Street Capital, told a parliamentary committee in July that a modest rise in the rate at which private equity executives were taxed would probably not have a harmful effect.