What is the tax rate on carried interest in the UK from 2025?

Full answer

Carried interest is the performance fee earned by private equity, venture capital, and hedge fund managers -- typically 20% of profits above a hurdle rate. It has historically benefited from CGT treatment rather than income tax rates. Pre-October 2024 treatment Qualifying carried interest (held for more than 40 months) was taxed at 28% CGT (the higher residential property rate was applied by statute). Non-qualifying carried interest was taxed as income. Budget October 2024 -- April 2025 changes From 6 April 2025, qualifying carried interest is taxed as a capital gain at a new standalone rate of 32% (not at the general CGT rates of 18%/24%). April 2026 -- full income tax integration From 6 April 2026, the government is implementing a new "income-based carried interest" (IBCI) charge: -- Carried interest is treated as miscellaneous income, but -- Only 72.5% of the amount is included in income ("qualifying fraction") -- The result is a headline effective rate equivalent to approximately 32% (72.5% x 45% additional rate = ~32.6%) -- Commercial co-investment gains and returns on invested capital continue to be taxed under CGT Base management fees Annual management fees (typically 1.5-2% of assets under management) are fully taxable as income at marginal rates (up to 45% additional rate) and have always been so. Global context The UK 32% carried interest rate remains competitive relative to the US (which is debating carried interest reform), France (34%), and Germany (26.375% flat). The reform brings the UK closer to the European mainstream while maintaining a lower rate than straightforward income tax.

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