From 6 April 2026, carry will be redefined and taxed in the United Kingdom as deemed UK trade or business income where investment management services (as redefined) are performed in the UK. The relevant draft legislation was published by HMRC in July 2025.
Qualifying Carried Interest
Qualifying carried interest will be eligible for a 72.5% multiplier discount – an effective income tax rate of approximately 34% (including self-employed Class 4 national insurance contributions) compared with the effective income tax rate (including NICs) of approximately 47% otherwise applicable and the previous capital gains tax rate for carry of 32% (if in scope).
As previously announced by HM Treasury, minimum coinvest and minimum carry holding period qualifying conditions for this treatment will now not be introduced. Technical reforms will also include equitably conforming carry rules for employees to those applying to investment managers generally and enabling carry derived from debt or credit funds to meet the qualifying conditions.
Application to internationally mobile managers
Internationally mobile managers who are not resident in the United Kingdom will be taxable in the United Kingdom on deemed income based on the number of UK workdays in a UK tax year exceeding a 60-day threshold. However, the new deemed UK trade or business rules are not currently intended to override the United Kingdom’s extensive Tax Treaty network under which, where an internationally mobile manager is resident in an applicable jurisdiction, the new deemed UK trade or business rules would only apply to that manager in HMRC’s view if they have a UK permanent establishment.
Next Steps
The draft legislation is subject to a technical consultation period to 15 September 2025 and we will be monitoring developments closely. The continued dialogue and engagement with stakeholders demonstrates the UK Government’s ongoing commitment to the UK onshore investment management sector.
