The taxation of carried interest in the UK has undergone significant changes, affecting investment fund managers, private equity professionals, and individuals who receive performance-related investment rewards.
From 6 April 2025, the Capital Gains Tax (CGT) rate on carried interest increased to 32%, replacing the previous rates of 18% and 28%.
A further reform took effect from 6 April 2026, bringing carried interest within a revised Income Tax framework.
At Business Management Consultation (BMC), we help individuals and investment professionals understand their tax obligations, calculate their liabilities, and plan effectively for changes in UK tax legislation.
What Is Carried Interest?
Carried interest is a performance-related reward typically received by investment fund managers when an investment fund achieves certain financial returns.
It is commonly associated with:
- Private equity funds.
- Venture capital funds.
- Investment partnerships.
- Alternative investment funds.
- Fund management arrangements.
Unlike a fixed salary or ordinary bonus, carried interest is generally linked to investment performance and the profits generated for investors.
The tax treatment depends on when the carried interest arises and whether it meets the relevant legislative conditions.
What Changed from 6 April 2025?
For the 2025/26 tax year, the UK Government introduced a single 32% Capital Gains Tax rate for carried interest falling within the CGT regime.
The changes included:
- Increasing the previous 18% and 28% CGT rates to 32%.
- Applying the same 32% rate regardless of the individual’s Income Tax band.
- Requiring relevant carried interest gains to be declared through Self Assessment.
- Reporting carried interest subject to CGT on the SA108 Capital Gains Tax Summary.
These rules applied from 6 April 2025 to 5 April 2026.
What Changed from 6 April 2026?
A further reform took effect on 6 April 2026, changing how carried interest is taxed in the UK.
Under the new regime, carried interest is generally treated as trading profits within the Income Tax framework rather than being subject to Capital Gains Tax.
This means:
- Carried interest is subject to Income Tax.
- Class 4 National Insurance contributions may also apply.
- Qualifying carried interest benefits from a 72.5% multiplier when calculating the amount treated as trading profits.
- The tax treatment depends on whether the carried interest satisfies the qualifying conditions.
- Individuals must consider the revised reporting requirements when preparing their Self Assessment returns.
These changes make it particularly important for fund managers to review their carried interest arrangements and understand the applicable tax treatment.
Example: How the 2025/26 Tax Increase Affected Carried Interest
Consider Emma, an investment fund manager who received £100,000 of carried interest during the 2025/26 tax year.
Assuming the full amount was subject to CGT and ignoring any applicable adjustments:
- Previous CGT rate of 28%: £28,000 tax payable.
- New CGT rate of 32%: £32,000 tax payable.
- Additional tax liability: £4,000.
Under these assumptions, Emma’s tax liability increased by £4,000.
For carried interest arising from 6 April 2026, the calculation is different because the new Income Tax and National Insurance regime applies.
Example: Qualifying Carried Interest from April 2026
Suppose an investment manager receives £100,000 of qualifying carried interest under the revised regime.
Assuming there are no permitted deductions:
- Qualifying carried interest: £100,000.
- Applicable multiplier: 72.5%.
- Amount treated as trading profits: £72,500.
Income Tax and applicable Class 4 National Insurance are then calculated using the relevant rates and the individual’s circumstances.
The multiplier does not mean that the individual pays tax at 72.5%. It determines the proportion of qualifying profits brought into charge.
Why Do These Changes Matter?
The reforms have significant implications for investment professionals receiving carried interest.
Understanding the new rules can help individuals:
- Calculate their tax liabilities accurately.
- Prepare for Income Tax and National Insurance payments.
- Review existing carried interest arrangements.
- Understand whether carried interest meets the qualifying conditions.
- Maintain accurate supporting records.
- Complete Self Assessment returns correctly.
- Plan future financial commitments.
- Reduce the risk of HMRC enquiries and reporting errors.
Professional advice is particularly important where carried interest arrangements involve complex investment structures, overseas funds, or multiple tax jurisdictions.
How Business Management Consultation (BMC) Can Help
At Business Management Consultation (BMC), we provide professional tax advice and Self Assessment support to individuals, investment professionals, and business owners.
We can help you:
- Review your carried interest tax position.
- Calculate Capital Gains Tax liabilities for the 2025/26 tax year.
- Assess the impact of the revised rules from April 2026.
- Prepare and submit Self Assessment tax returns.
- Complete the SA108 Capital Gains Tax Summary where applicable.
- Review relevant tax allowances and reliefs.
- Understand potential Income Tax and National Insurance liabilities.
- Maintain accurate records for HMRC compliance.
- Plan ahead for future tax obligations.
Our aim is to provide clear, practical advice that helps you understand your responsibilities and manage your tax affairs confidently.
Plan Ahead and Stay Tax Compliant
The changes to carried interest taxation represent a significant development for investment fund managers and private equity professionals.
With the 32% Capital Gains Tax rate applying during 2025/26 and the revised Income Tax framework now in effect, understanding the correct treatment is essential.
At Business Management Consultation (BMC), we help individuals navigate complex tax legislation, prepare accurate tax returns, and make informed financial decisions.
Call us today on 01273 777 333 to discuss your carried interest tax position or arrange a consultation with one of our experienced advisers.
