The UK’s recent budget announcement introduced notable changes to the tax treatment of carried interest, impacting private market participants, particularly among the Alternative Investment Management Association’s (AIMA’s) private credit manager members.
There remains a significant amount of details to be clarified as part of the newly announced industry consultation, but one noteworthy point in the summary is that carried interest will be taxed as trading profits under the Income Tax framework, with special computational rules applying a 72.5% multiplier to qualifying carried interest.
This aims to reflect carried interest’s long-term investment nature and ensure that fund managers’ tax rates align with the economic characteristics of these rewards.
AIMA CEO Jack Inglis said in a statement: “Today’s announcement regarding the tax treatment of carried interest acknowledges the need for the UK to be competitive in an international context. The new capital gains tax rate of 32% keeps the UK close to the tax treatment in other countries, such as the US, but it is intended to be replaced by a new regime that sits wholly within the income tax framework.
“The government will consult further on policy options for the new regime, and while the details need to be examined fully, we note the elements of the package that appear to recognize the role of carried interest in aligning stakeholder objectives and incentivizing private market investments and asset management in the UK. In particular, we support the recognition of private credit managers’ role in financing the UK economy.”