New UK carried interest regime – updated legislation published

Following the Autumn Budget on 26 November 2025, the government has now published Finance Bill 2025-26, which includes the updated legislation for the new carried interest regime that will come into force with effect from 6 April 2026. Please see the link to the Finance Bill here. The provisions in respect of the new carried interest regime are in clause 56 and schedule 11. 

Further detail

A number of amendments have been made to the draft carried interest legislation published on 21 July 2025, to address feedback received during the consultation.  The main updates of interest are summarised below:

• Statutory Limitations for Non-UK Residents – One point raised during the consultation was whether the statutory limitations for non-UK residents could be expanded to apply to non-qualifying carried interest. In particular, there was a concern that executives may otherwise be deterred from coming to the UK for short business trips, particularly where there was uncertainty on whether carried interest would meet the AHP requirement.
• The statutory limitations for non-UK residents will continue to apply only to qualifying carried interest.  However, a new provision was introduced whereby if, on the first UK workday of the relevant period, it was reasonable to assume that the carried interest would be qualifying carried interest, then where the individual is non-UK resident and has less than 60 UK workdays in the tax year, their UK workdays in that tax year will be considered non-UK workdays for the purposes of determining the proportion of the deemed trade which is carried on in the UK in respect of the non-qualifying carried interest.
• Apportionment period for UK/non-UK trade – For the purposes of apportioning the deemed trade between a UK and non-UK trade, it is necessary to consider the number of UK workdays as a proportion of the total applicable workdays during the relevant period. The definition of relevant period has been amended to commence on the later of:
  
     (i) the day on which the first external investor was admitted to the scheme in respect of which the individual is entitled to carried interest under the arrangements; and
  
     (ii) the first day on which the individual performs any investment management services directly or indirectly in respect of an investment scheme under the arrangements.
  
  Further, the relevant period has been amended to end on the earlier of:
  
     (i) the last day in the tax year on which a sum of carried interest arose to the individual from an investment scheme under the arrangements; and
  
     (ii) last day on which the individual performed any investment management services directly or indirectly in respect of an investment scheme under the arrangements.
  
  
• These amendments mean that, should an individual cease providing investment management services for one fund manager and, say, move to another firm, then the relevant period in respect of any carried interest awarded by the original fund manager should cease (and any investment management services performed for the new firm would not be relevant for the purposes of apportioning the carried interest awarded by the original fund manager).
• Exclusive tax charge – One of the key principles of the new regime is that the tax charge under the carry rules is an exclusive charge, which is intended to displace any separate charge on trading profits that may arise on first principles.
• The legislation has been amended to provide that where carry returns are subject to employment tax, those returns will not be considered carried interest for the purposes of the new regime, meaning a claim for a consequential adjustment (see below) does not need to be made.
• In addition, where the carry returns would otherwise be taxed as trading income, the legislation allows individuals to elect to disapply the carried interest rules and instead be taxed under general principles where this may be beneficial (e.g. where deductions from trading income may otherwise be available).
• The election must be made by 31 January following the end of the tax year in which the election is intended to apply.
• Relief from double taxation - The relieving provisions have been expanded to include relief, where there is a charge under the carried interest rules, from any other UK taxes and National Insurance Contributions (“NIC”) charged on the carried interest arising or in respect of an individual’s entitlement to carried interest (which we understand should include on acquisition). UK taxes for these purposes are income tax, corporation tax, capital gains tax, or inheritance tax.
• The adjustment will now be made to the profits chargeable under the carried interest rules (rather than the income tax thereon). The consequential adjustment cannot result in lower income tax and NIC being paid than would have been paid under the carried interest rules absent the adjustment.
• Tax distributions – The original draft legislation provided that tax distributions would be treated as carried interest however the definition of tax distributions was too narrowly drafted to apply to many commercial arrangements. The definition has now been expanded to include distributions to cover non-UK taxes (as well as UK taxes) which become payable, or are expected to become payable, as a result of the individual’s entitlement to carried interest, including where these are calculated on the basis of an assumed rate.
• Permitted deductions – The definition of permitted deduction has been expanded to allow consideration in the form of money’s worth (other than the provision of investment management services) given by or on behalf of the individual for the entitlement to carried interest to be deducted from the amount considered deemed trading income.
• Payments on Account – There continues to be no carve out for carried interest when calculating payments on account due for the following tax year.

Provisions relating to the AHP calculation

There have been some helpful amendments to the provisions that govern the calculation of the AHP, as well as some minor clarifications, for example on the threshold in relation to a ‘relevant disposal’ for certain funds.

• Unwanted Short Term Investments (USTI) – Definition has been broadened to disregard the acquisition and disposal of a ‘part investment’ (e.g. partial syndication of loan). The conditions to be regarded as a USTI require that the cost of the (part) investment does not exceed 50% of the total cost of investments acquired and so is no longer capped by reference to the investment scheme’s other investments. In addition, there is no longer a requirement for the investment, or part investment, to actually be disposed of within 12 months provided there was a clear and evidenced intention to do so.
• Debt Investments – The specific provisions relating to debt investments have been moved with the effect that they are no longer limited to investments made by ‘credit funds’, offering clarification on timing and recognition for the purpose of the AHP calculation for any debt investments held by any investment scheme.
• Unconditional Obligation – Debt investments are treated as being made when there is an unconditional obligation to advance money. The amended legislation specifies that obligations are not ‘conditional’ where they are only contingent on the fulfilment of conditions that are outside the control of the investment scheme and connected persons, and/or they are reasonable to obtain for a prudent investor in similar circumstances.
• Disposal of debt investments – The list of events that will not be treated as a disposal of a debt investment has been expanded to include debt-for-equity swaps and corporate rescues (in line with corporate tax definitions). The principles-based test for transactions that don’t meet those statutory definitions has also been updated, replacing previous reference to needing substantially the same ‘risks and rewards’ with ‘economic effects’. Guidance is expected to be issued with examples in relation to the revised terminology.
• Early repayment – The provision for early repayment of loans will now apply to all loans regardless of their initial term, and where it applies, loans will be treated as if they have been repaid in accordance with their original terms, capped at 40 months. This is provided that the investment scheme was capable of holding to maturity and at any time prior to the early repayment there was no intention to dispose of the loan before it was due under its initial repayment terms.  
• Credit funds – The definition of ‘debt investment’ for the purpose of the credit fund rules has been expanded to include arrangements which produce a return economically equivalent to interest (by reference to existing definitions of disguised interest for UK corporation tax purposes)
• Equity investments made by Credit funds – References to “equity investment” have been replaced with “investment in shares” and a definition added in order to provide broader capture, and in particular to address the previous inadvertent exclusion of UK property rich companies.
• Venture Capital Funds – The concept of an investment scheme exercising relevant rights has been extended to include rights exercised by two or more investment schemes acting together.
• Funds of funds – The definition no longer includes the ‘qualifying fund’ condition from the QAHC regime (without reinstating the existing IBCI requirement that broadly speaking 75% of the Fund of fund’s investors are external). Its definition has also been broadened to include ‘direct co-investments’ that are made alongside another investment scheme in which the Fund of fund has invested.
• Independence test for Fund of funds – An ‘independence’ test replaces the previous requirement that the Fund of fund and the underlying investment are ‘unconnected’ and no person provides investment management services to both schemes following practical concerns raised by the industry. In broad terms, schemes are ‘independent’ where people providing investment management services to both schemes are not the same or substantially the same.
• Conditionally Qualifying Carried Interest – Funds that calculate carry on an unrealised basis (which includes many evergreen funds) will now in principle be able to treat carried interest arising within ten years of the scheme starting to invest as conditionally qualifying (currently it is limited to carried interest arising within four year of the scheme starting to invest).
• Subsequent charges to non-qualifying Carried Interest – Where carried interest ceases to be conditionally qualifying (such that additional tax is due) it will be treated as arising at the time it ceases to be conditionally qualifying, with credit for tax already paid. This will remove many of the practical difficulties under the current rules where any additional tax would be assessed in the year the carried interest originally arose.

Please speak with your usual Deloitte contact or any of the contacts below if you would like to discuss.