Tax Planning
Tax Planning for Private Equity: How UK’s Carried Interest Reforms Affect Fund Managers
With UK carried interest now moving into the Income Tax framework from April 2026, fund managers must rethink tax planning strategies covering profit allocation, co-investment and timing.
By NomadicTax Research Team • 5-8 min read • November 23, 2025
## Overview of the Carried Interest Reform
- From **6 April 2025**, CGT rates applicable to carried interest will rise: lower-rate from 18% → **32%**, higher-rate from 28% → **32%**. ([gov.uk](https://www.gov.uk/government/publications/carried-interest-rates-of-capital-gains-tax/capital-gains-tax-rates-of-tax-carried-interest?utm_source=openai))
- From **6 April 2026**, a **revised tax regime** comes in: carried interest treated as **trading profits** under Income Tax and Class 4 NICs; only **72.5%** of qualifying profits taxed as trading profits. ([gov.uk](https://www.gov.uk/government/publications/reform-of-the-tax-treatment-of-carried-interest/revised-tax-regime-for-carried-interest?utm_source=openai))
## Planning Strategies Before April 2026
1. **Review existing carried interest awards** to time receipt or structure around the current CGT rates before they increase in April 2025. For those eligible, earlier crystallisation may still benefit from lower CGT.
2. **Ensure allocation of qualifying carried interest** under asset-level average holding period rules; funds should verify that funds satisfy AHP conditions, especially funds with complex structures like credit funds. ([gov.uk](https://www.gov.uk/government/calls-for-evidence/the-tax-treatment-of-carried-interest-call-for-evidence/outcome/the-tax-treatment-of-carried-interest-government-response-and-policy-update-june-2025-accessible?utm_source=openai))
3. **Assess whether carried interest or profit distribution can be backdated or aligned** with investments still meeting “qualifying” criteria to maximise the 72.5% trading-profit multiplier under the new regime.
## Compliance and Structure Adjustments
- **Document roles and services performed in the UK**: The regime requires clarity on where investment management services are performed—if in the UK, tax will apply even to non-UK residents. ([gov.uk](https://www.gov.uk/government/calls-for-evidence/the-tax-treatment-of-carried-interest-call-for-evidence/outcome/the-tax-treatment-of-carried-interest-government-response-and-policy-update-june-2025-accessible?utm_source=openai))
- **Understand AHP condition changes**: Exclusions being removed and T1/T2 rules being amended to accommodate commercial realities, especially in credit and secondary funds. ([gov.uk](https://www.gov.uk/government/calls-for-evidence/the-tax-treatment-of-carried-interest-call-for-evidence/outcome/the-tax-treatment-of-carried-interest-government-response-and-policy-update-june-2025-accessible?utm_source=openai))
- **Systems & reporting**: Update internal accounting and reporting, especially for permitted deductions, qualification status, record-keeping of qualifying vs non-qualifying profits.
## Practical Examples
| Scenario | Impact Before Reform | Impact After Reform (from 6 April 2026) |
|---|---|---|
| Fund manager receives carried interest on disposal of fund with long holding period | May get 18% (or 28%) CGT rate if qualifies and meets AHP | Treated as **trading profit**; 72.5% of profit taxed via Income Tax + NICs; non-qualifying portion treated differently |
| Non-UK resident performing UK-based services | Taxable only where CGT applies and if gains remitted (depending on remittance basis) before non-dom reforms | Taxed on profits from UK services; DTAs and territorial rules apply; clearer apportionment required |
## Actionable Advice
- Review all carried interest arrangements **now**, ideally with tax advisers, to see whether restructuring or accelerated exits make sense.
- Advise fund managers to map out **co-investment, holding period, and service delivery locations** clearly—they affect qualification and liability.
- For non-UK residents or new entrants, evaluate whether they’ll meet UK work-day thresholds or territorial exposure triggering UK taxation.
Carried interest taxation is changing in a major way. By planning ahead—with detailed review of fund agreements and profit allocation—fund managers can manage risk and optimise outcomes under the new regime.