Revised tax regime for carried interest
Published 21 July 2025
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This publication is available at https://www.gov.uk/government/publications/reform-of-the-tax-treatment-of-carried-interest/revised-tax-regime-for-carried-interest
Who is likely to be affected
This measure will impact individuals who receive carried interest where either the individual is UK tax resident or the carried interest relates to investment management services performed in the UK.
General description of the measure
This measure will introduce a revised tax regime for carried interest which sits wholly within the Income Tax framework, with carried interest treated as trading profits and subject to Income Tax and Class 4 National Insurance contributions.
Policy objective
This measure ensures that the tax treatment of carried interest properly reflects its economic characteristics, putting the UK’s tax regime on a fairer and more stable footing for the long term, while recognising the unique characteristics of the reward and protecting the UK’s position as a world-leading asset management hub.
Background to the measure
This measure was announced at Autumn Budget 2024. A policy update was published on 5 June 2025.
Detailed proposal
Operative date
This measure will have effect on and after 6 April 2026.
Current law
Current law setting out the tax treatment of carried interest is primarily contained in chapter 5 of part III of the Taxation of Chargeable Gains Act 1992, supplemented by definitions contained in chapters 5E and 5F of part 13 of the Income Tax Act 2007.
Proposed revisions
Legislation will be introduced in Finance Bill 2025-26 to establish a revised tax regime for carried interest, which will primarily be contained in chapter 2 of part 2 of the Income Tax (Trading and Other Income) Act 2005 and schedule A1 of that Act.
The revised tax regime will apply where an individual performs investment management services directly or indirectly in respect of an investment scheme under any arrangements and carried interest arises to the individual under those arrangements. The legislation will provide that the individual is treated as carrying on a trade and the carried interest (less any permitted deductions) is treated as the profits of that trade.
Where the carried interest is ‘qualifying’, the legislation will provide that the amount to be treated as trading profits is 72.5% of the ‘qualifying profits’. The qualifying profits is the amount of qualifying carried interest less any applicable permitted deductions. The amount of carried interest which is ‘qualifying’ is depends on the average holding period of the relevant investment scheme.
The legislation will also:
- define what is meant by ‘carried interest’
- define the territorial scope of the revised regime
- detail the amounts which are to be treated as ‘permitted deductions’
- set out certain circumstances in which carried interest is treated as arising to an individual
- explain how to determine the average holding period of an investment scheme
- provide for an election to be made to treat carried interest as arising at an earlier time
Summary of impacts
Exchequer impact (£ million)
| 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 | 2028 to 2029 | 2029 to 2030 |
|---|---|---|---|---|---|
| Nil | Nil | -5 | +140 | +80 | +85 |
These figures are set out in table 5.1 of Autumn Budget 2024 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Budget 2024.
Note that these figures also include the impact of the change in the applicable Capital Gains Tax rate for carried interest announced at Autumn Budget which took effect for the 2025 to 2026 tax year.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
For UK tax resident individuals, this measure will change the way the carried interest they receive is taxed, including how they compute their tax liability. Such individuals are expected to incur one-off costs of familiarisation with the new rules.
As a result of the measure, some individuals resident outside the UK may be subject to UK tax on carried interest for the first time. Such individuals are expected to incur one-off costs of familiarisation with the UK tax rules (including this measure) and taking steps to pay UK tax (such as registering for Self Assessment).
Ongoing costs for both groups of individuals include engaging agents, keeping applicable records, calculating the amount of tax due and filing and paying the tax.
This measure is not expected to impact on family formation, stability, or breakdown.
This measure is expected overall to have no impact on individual’s experience of dealing with HMRC, as the measure directly impacts a highly sophisticated population of taxpayers who will be expected to use agents and will be aware of the requirements in advance.
Equalities impacts
Individuals may be affected by this measure regardless of their protected characteristics.
If a protected group is overrepresented in this population, then it will be disproportionately impacted. HMRC hold data on the sex and age of the customer population who receive carried interest and will publish this information shortly. HMRC do not hold information about the other protected characteristics of these individuals, so we are unable to assess impacts for those in other groups sharing protected characteristics.
Impact on business including civil society organisations
Although this measure only directly affects individuals, it is expected to have a negligible impact on businesses which manage the funds from which carried interest arises. Such businesses may be indirectly affected as the information individuals require in relation to the carried interest they receive may change.
These businesses will therefore incur one-off costs of familiarisation with the new rules. Ongoing costs include establishing the systems and processes to provide accurate reports in relation to the carried interest individuals receive.
It is not expected that there will be any impact on civil society organisations.
This measure is expected overall to have no impact on the experience of business in dealing with HMRC as the change only impacts them indirectly.
Operational impact (£ million) (HMRC or other)
HMRC will need to make changes to HMRC IT systems to support implementation of this measure. These changes are currently estimated to cost in the region of £1.87 million.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be monitored through information provided on tax returns and through communication with taxpayers and practitioners affected by the measure.
Further advice
If you have any questions about this change, email the carried interest policy team at carriedinterest@hmtreasury.gov.uk.