Last updated: 14 October 2026
How is carried interest taxed after the 2024 Budget?
From 6 April 2026, carried interest is no longer taxed as a capital gain. It’s taxed as trading profits under income tax and Class 4 NIC, through a new regime announced in the Autumn Budget 2024. For “qualifying” carried interest, only 72.5% of the amount is taxable, giving an effective top rate of about 34.075% for additional-rate taxpayers. As a transitional step, the CGT rates on carried interest rose to 32% for 2025/26.
Timeline
| Period | Treatment |
| Up to 5 April 2025 | CGT at 18% and 28% |
| 6 April 2025 to 5 April 2026 | CGT at a flat 32% |
| From 6 April 2026 | Income tax and Class 4 NIC; qualifying carry taxed on 72.5% |
Qualifying carried interest
Carry is qualifying if the fund’s average holding period of investments is at least 40 months. If it is less than 36 months, none of it is qualifying, and the full amount is taxed at income tax rates. Between 36 and 40 months, a sliding scale applies. Carry that doesn’t qualify is taxed in full, at up to 45% plus 2% NIC.
Effective rates
- Qualifying carry, additional-rate taxpayer: 45% × 72.5% = 32.625% income tax, plus 2% NIC × 72.5% = 1.45%, totalling 34.075%
- Non-qualifying carry: up to 47%
Non-UK residents
Because carry is now treated as trading income, non-residents may be taxed on the UK share of carry for services performed in the UK. Protections apply for those with limited UK workdays, and double tax treaties may help.
Example
Sofia, a UK-resident partner in a private equity fund, receives £1 million of carry in 2026/27. The fund’s average holding period is 52 months, so it’s qualifying. She’s taxed on £725,000 as trading profits. Her effective tax is about £340,750, compared with £320,000 at 32% in 2025/26.
What fund managers should do
- Review fund documents to check the average holding period
2. Register for Self Assessment, as carry is reported as trading income
3. Plan payments on account, as the tax will be due in two instalments
4. Take advice on cross-border workdays
5. Keep records of the fund’s investment holding periods
Who is affected
The changes apply to individuals who perform investment management services for a fund and receive carry. Co-investment returns, where the manager invests their own money on the same terms as investors, are still taxed under the normal CGT or dividend rules.
Common mistakes
- Assuming carry received in 2026/27 is still a capital gain because the fund was set up earlier
- Not checking the average holding period before the year end
- Forgetting that payments on account for 2027/28 will be based on the higher 2026/27 bill
- Overlooking NIC, which did not apply when carry was taxed as a gain
Records
Keep the fund’s carry statements, distribution notices and the calculation of the average holding period. HMRC may ask how each figure was worked out.
Frequently asked questions
Is carried interest still a capital gain?
Not from 6 April 2026.
Do I pay Class 4 NIC?
Yes, as it’s trading income.
What if I’m basic rate?
Rates are lower, but carry amounts usually push into higher rates.
Are payments on account required?
Yes, under normal Self Assessment rules.
Related: reliefs to reduce gains on shares, CGT rates and Investors’ Relief limit cuts.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with tax on carried interest. See our small business accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
