jurisdiction

1. Is there a specific tax regime for carried interest in your jurisdiction?

Yes.

2. What is the applicable tax treatment?

The UK distinguishes two categories of carried interest:

-Qualifying carried interest benefits from a 72.5% multiplier, giving an effective top tax rate of 34.075% for additional‑rate taxpayers. For carry to be “qualifying”, the underlying assets must be held for at least 40 months on average, with tapering down to 36 months. 

-Non-qualifying carried interest applies where the holding period requirements are not met and is taxed at rates of up to 47%.

In both cases, carried interest is fully brought into the income tax regime and treated as trading profits, subject to income tax and national insurance contributions (“NICs”).

3. Under which conditions are the regime applicable?

Individuals who provide "investment management services" in respect of an "investment scheme" are deemed to be carrying on an investment management trade. Arrangements would be expected to follow the model structure set out within a memorandum of understanding with HMRC (the "MoU"). The carried interest must be genuine and follow a standard distribution waterfall, with investors expected to receive a preferred return (hurdle) before carry begins to pay out. Above the agreed hurdle, returns are shared between investors and management. Carry can apply on a fund-as-a-whole or deal-by-deal basis, and catch-up provisions are permitted. See other conditions related to the beneficiaries below.

4. Who are the beneficiaries?

The regime applies to all individual investment managers who receive carried interest, irrespective of their residence status. This includes UK tax-resident individuals and non-residents, to the extent the carry relates to UK workdays. A UK workday is defined as the performance of more than 3 hours of investment management services within the UK per day. A safe harbour applies for qualifying carried interest if a non-resident performs fewer than 60 UK workdays per annum, in which case returns are not subject to UK tax.

5. Which types of funds are concerned?

The regime applies to carried interest derived from investment schemes broadly. This includes, among others, private equity funds, private credit funds, hedge funds and other alternative asset strategies, as these commonly provide performance‑based carry to investment managers.

6. Is carried interest subject to social security in your jurisdiction?

Yes. From 6 April 2026, carried interest is treated as a trading profit and is subject to Class 4 NICs in addition to income tax. Qualifying carried interest benefits from the reduced effective rate described above but remains within the NICs regime.

7. Any other key information? 

There is no requirement for a minimum co-investment to access the carried interest regime. Any co-investment returns are taxed according to normal UK tax principles and not under the carried interest regime. At the point of allocation to an employee, a carried interest is an employment-related security ("ERS"). ERS allocations are taxable on the difference between the price paid and their market value. However, where the carried interest structure follows the agreed model set out in the MoU, the nominal price paid by management upfront is deemed to be market value. The above treatment remains subject to the application of UK anti-avoidance rules.