QE Tax Flash: Complexity Coming for Carry

From 6 April 2026, reforms for the tax treatment of carried interest come into effect. Until now, it has been taxed as a capital gain, but the new rules mean carried interest arising to UK taxpayers will be taxed within the income tax regime as profits of a deemed trade, with which comes a combined top rate of income tax and national insurance contributions of up to 47%. To preserve the UK’s competitiveness for fund managers, “qualifying” profits will have a lower effective rate at approximately 34% through a multiplier mechanism. Non-UK resident managers with UK workdays are also in scope, with no workday safe harbour for non-qualifying carry.

Liesl Fichardt: “The new regime is firmly grounded in a conceptualisation of carried interest as trading income. This introduces complexity and potential for disputes, beyond the headline change in tax rate.”

Julius Berling: “At the margins, aspects of the reform improve upon the status quo, but the rigidity of the rules will create friction for innovative funds.”

Emily Au: “Disputes about qualifying status, workday attribution and the average holding period calculation are on the horizon, making contemporaneous record-keeping and forward planning vital.”

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