The UK carried-interest regime changed on 6 April 2026. For a fund manager, the useful question is how the legislation applies to a particular arrangement and recipient. A single headline effective rate cannot answer that question.
What changed in April 2026
HMRC describes the new framework as treating carried interest as trading profits within Income Tax, with Class 4 National Insurance. Where profits qualify, the calculation applies a 72.5% multiplier to qualifying profits after the relevant deductions. It is not a discount on every gross distribution. The earlier 32% carried-interest CGT rate applied in 2025/26 and should not be presented as the current general treatment. See HMRC’s explanation of the reform.
The enacted rules are in Finance Act 2026, section 58 and Schedule 11. Qualification, permitted deductions and personal tax rates must be determined before calculating liability. This overview does not calculate anyone’s tax or recommend changing an investment or exit date.
Holding periods require a statutory calculation
The general Schedule 11 scale reaches full qualification at a 40-month average holding period, with partial qualification between 36 and 40 months. It is subject to detailed exceptions and fund-specific rules. Follow-on investments and disposals cannot safely be reduced to a universal rule that every transaction restarts the clock. The legislation also contains venture-capital and other investment-scheme provisions. Use the enacted Schedule for the actual calculation.
ObvioTech practical assessment: assemble the fund agreements, investment dates, amounts, relevant rights and disposal history before seeking a calculation. Record which statutory provision supports each adjustment. A spreadsheet result without that explanation is difficult for another adviser or administrator to reproduce.
Residence and UK services
Section 23K, inserted by section 58, deals with UK and overseas investment-management services. Its workday attribution has detailed exclusions that differ for qualifying and non-qualifying profits. A relevant UK workday involves more than three hours of investment-management services in the UK; the statutory definition of a non-UK tax year includes non-residence and fewer than 60 UK workdays. Those details are not a stand-alone exemption or a substitute for the full calculation.
Ask an appropriately qualified adviser to consider residence, the applicable service period and any treaty position together. Keep contemporaneous work-location records and explain incomplete evidence. This article does not assert that every overseas manager with a London meeting incurs the same charge or that double-tax relief is universally unavailable.
Keep MTD eligibility separate
HMRC’s qualifying-income guidance includes disguised investment-management fees and income-based carried interest. That statement does not make every carried-interest recipient subject to Making Tax Digital. Check the relevant income year, threshold and exemptions for the individual.
Quarterly MTD updates are reporting obligations, not quarterly tax returns or automatic new payment dates. HMRC’s quarterly-update guidance distinguishes the updates from the annual return. Assess payments on account separately rather than attributing their cash-flow effects to the submission of a quarterly update.
A review file that can be checked
- Identify the arrangement, recipient and date the carried interest arises.
- Document qualifying and non-qualifying amounts and permitted deductions separately.
- Retain the adviser’s holding-period and territorial calculations, including exceptions.
- Check the individual’s filing and payment obligations, rather than copying another fund’s result.
- Revisit the calculation when the facts or applicable guidance change.
These are suggested review controls, not evidence that a particular fund is compliant. Related EIS/VCT company limits concern a different question and do not determine a manager’s carried-interest liability.
This article provides general information, not tax, investment or legal advice. Specialist advice is necessary for a particular fund or recipient.
