From April 2026, a revised tax regime will be introduced which sits within the income tax framework. Consequently, all carried interest will be treated as trading profits and subject to income tax and Class 4 National Insurance Contributions (for non-UK taxpayers, this is a payroll tax). The effective tax rate will be 34.1 per cent for carried interest, lower than the 45 per cent additional rate of income tax.

In its latest policy announcement on this subject, the government has dropped plans for a co-investment proposal which required executives to put a minimum amount of their own money into their funds and softened the rules for the fund holding period required for a fund manager to qualify for the 34.1 per cent tax rate.

To guide readers through all this is Henry Lowe, private client tax partner at accountancy practice . (More on the writer below.)

Remember, the usual editorial disclaimers apply to views of guest writers. We are grateful for the opportunity to share these insights. To comment on this article, email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com. Remember, the usual editorial disclaimers apply to views of guest writers. We are grateful for the opportunity to share these insights.

In the Autumn 2024 Budget, changes to the taxation of carried interest were announced, with a change of tax rate from April 2025 and wider reform due from April 2026. Following a consultation, the government has now provided detail of the policy changes from April 2026.

Carried interest is a form of performance-related reward received by fund managers and the applicable rate of capital gains tax was increased in April 2025 from 20 per cent to 32 per cent.

From April 2026, a revised tax regime will be introduced which sits within the income tax framework; this means that all carried interest will be treated as trading profits and subject to income tax and Class 4 National Insurance Contributions. The effective tax rate will be 34.1 per cent for carried interest, lower than the 45 per cent additional rate of income tax.

In the government’s latest policy announcement, it has dropped plans for a co-investment proposal which required executives to put a minimum amount of their own money into their funds and softened the rules for the fund holding period required for a fund manager to qualify for the 34.1 per cent tax rate. 

Also announced were concessions for non-UK residents. All services conducted in the UK before the October 2024 Autumn Budget will be outside the charge, classed as non-UK activities, and non-UK residents will only be providing ongoing UK services if they work for 60 days a year in the UK.

Globally-mobile individuals will need to monitor their work in the UK, consider potential double tax treaty relief and the interaction with the new Foreign Income and Gains (“FIG”) regime.

All affected should review the consequences of the new Making Tax Digital (“MTD”) rules which will require quarterly reporting for those with trading profits above certain thresholds. It is also crucial to consider the timing of crystallisation events, the investment holding periods and whether alternative methods of remuneration or fund structuring will now be more efficient.

The government is publishing the legislation for these revised changes in the Finance Bill 2025-26, and it hopes to publish draft legislation before the summer recess. Before the new rules are announced it is imperative to review your circumstances. 

About the author

Henry Lowe is a Chartered Tax Adviser, whose clients include high net worth individuals, entrepreneurs and trustees. He is involved in tax planning, including capital gains tax and inheritance tax matters, and advising on the tax consequences of offshore trusts and residence and domicile issues.

On an international level, Lowe frequently assists clients who are looking to move to the UK with tax-efficient structuring of their financial affairs. This includes establishing when they will become UK resident, funding the purchase of a UK property, organising bank account arrangements and identifying and disposing of unsuitable investments. He has experience in advising trustees on the UK tax implications in relation to offshore structures.