Jurisdiction(s):
United Kingdom

Related legal acts

Key definition

Carried interest definition

What does Carried interest mean? Carried interest is the performance‑linked share of a private fund’s profits allocated to the manager (typically the general partner or its executives) once investors have first received back their capital plus an agreed preferred return (hurdle). It is a contingent, subordinated entitlement designed to reward long‑term fund performance and align the interests of managers and investors. In practice, carried interest is set out in the fund’s limited partnership agreement and related documents. It is commonly expressed as a percentage of total profits (industry norm c.20%), calculated and distributed under the fund’s waterfall, which may operate on a whole‑of‑fund...

UK income-based carried interest rules: holding period test, DIMF interaction, fund-category modifications, direct lending, conditional exemptions and double taxation relief, with 2026 reforms

Published by a LexisNexis Tax expert

Practice notes

FORTHCOMING CHANGE relating to the tax treatment of carried interest:

Following a call for evidence on the tax treatment of carried interest held over summer 2024, the Autumn Budget 2024 saw the government set out plans to introduce a revamped carried interest tax regime from 6 April 2026, operating within the income tax system and supported by tailored rules designed to reflect the distinctive features of the reward. A consultation then considered potential new qualifying criteria for entry into the new regime, with the government’s response being issued in June 2025. Draft legislation for the carried interest regime was published on 21 July 2025, for inclusion within Finance Bill 2026. The new provisions will apply to carried interest arising on or after 6 April 2026. All of this was confirmed at the Budget on 26 November 2025, where it was also noted that further amendments had been made to the draft to take account of stakeholder feedback. Pending commencement of the new framework, the capital gains tax rate applicable to carried interest was increased to 32% with effect from 6 April 2025. For further information on this carried interest tax reform,...

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Emily Clark

Travers Smith

Emily trained at Travers Smith and is a partner in the tax group. She specialises in the taxation of investment funds acting for private equity houses, hedge funds and real estate funds.She advises on fund formation and on tax-efficient structures for fund managers, carried interest and LLP conversions. She has particular expertise in tax structuring for non-domiciled investors and fund managers.Emily also has extensive experience of group restructuring, international tax, joint ventures and real Emily is a member of the British Property Federation´s tax committee....

Web page updated on 22/05/2026

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