Taxation of private equity funds—carried interest
Produced in partnership with Emily Clark of Travers Smith
Practice notesTaxation of private equity funds—carried interest
Produced in partnership with Emily Clark of Travers Smith
Practice notes
FORTHCOMING CHANGE relating to the tax treatment of carried interest: Following a call for evidence on the tax treatment of carried interest that ran over summer 2024, at Autumn Budget 2024 the government announced that it would introduce a revised tax regime for carried interest, from 6 April 2026, that would sit within the income tax framework, subject to special rules to take account of the unique characteristics of the reward. A consultation on potential new qualifying conditions for access into the new regime followed, with a government response to this being issued in June 2025. Draft legislation for the new tax regime for carried interest was published on 21 July 2025, for inclusion in Finance Bill 2026. The new rules will have effect for carried interest arising on or after 6 April 2026. In the meantime, the capital gains tax rates applicable to carried interest were increased to 32% with effect from 6 April 2025. For more on the government announcements on carried interest tax reform, including some commentary from legal experts in the
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Jurisdiction(s):
United Kingdom
Related legal acts:
Key definition:
Carried interest definition
What does Carried interest mean?
A specific type of performance fee which should reflect the long term performance of a fund. It is a contingent, subordinated right to share in the profits of a private equity fund, which acts as an incentive for private equity executives. The holders of carried interest do not start to share in returns until investors have received (broadly) an amount equal to their original investment plus an additional return (preferred return or hurdle) on their capital. Carried interest is normally expressed as a percentage of the total profits of the fund. The industry norm is 20% with the fund manager therefore receiving 20% of the profits generated by the fund.
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