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An analysis by Travers Smith, Taxand UK
The UK government has recently published draft legislation for the new carried interest tax regime, effective from 6 April 2026. Carried interest will generally be taxed as trading income at rates up to 47%, though “qualifying carried interest” will face a reduced effective rate of ~34.1%. Qualification hinges on a fund’s weighted-average holding period (AHP) exceeding 40 months, with partial relief between 36–40 months. Key improvements include relaxed AHP rules for credit, secondary, and fund-of-funds strategies.
Non-residents will be taxed on UK “workdays” (defined as >3 hours of UK-based investment work), with limited exemptions and potential treaty relief. The new regime also aligns with the UK’s inpatriate tax rules. However, issues remain around cash flow under payment-on-account rules, complex AHP calculations, and insufficient clarity for multi-strategy funds. The draft is open for consultation until 15 September 2025.
Elena Rowlands and Tom Margesson from UK member firm Travers Smith has published a more detailed analysis of the new regime which can be read here.
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