Carried Interest Tax Calculator

Carried interest is the share of investment profits paid to fund managers (typically 20%) as performance fee. In private equity, this 'carry' is normally a return of capital, making it a capital gain rather than income.

Qualifying carried interest is taxed as capital gains at 28% (the higher CGT rate). This is substantially lower than the 45% additional rate income tax that applies to non-qualifying carry.

The base cost shift allows fund managers to reduce their taxable carried interest gain by up to £5 million (aggregate across all funds) that represents the economic value they contributed. This reduces the CGT liability.

Carry is treated as income (not CGT) if it doesn't meet the 'qualifying' conditions — typically where the fund doesn't hold investments for long enough or the economic arrangements fail the carried interest rules. HMRC challenged many arrangements post-2015.

Qualifying carried interest (CGT treatment) does not attract NICs. If treated as employment income, Class 1 NIC would apply. Most fund managers structure carry to be qualifying and avoid NIC.

The 2024 Autumn Budget announced that from April 2026, carried interest will be charged under a new income-based carried interest regime, with a flat rate of 32.5% (income tax + additional rate). This replaces the current 28% CGT treatment.

Yes, if carry is treated as a capital gain, you can offset current year capital losses and brought-forward capital losses against the gain before calculating CGT.

The tax treatment is the same under the qualifying carried interest rules. However, hedge fund carry is more likely to fail the qualifying conditions if investments are held for short periods (under 40 months on a weighted average basis).