UK carried interest reform—Practical insights for funds and fund managers

Looking beyond the increase in the tax rate, which had historically been 28% under the capital gains regime, in this article we provide some insight into what opportunities and practical implications the regime change may have for funds and fund managers:

• Simplification opportunity: The shift to a single income tax regime removes the need to analyse whether underlying returns are capital or income in nature. Fund managers may see this as an opportunity to simplify historically complex carry structures that were required to achieve capital treatment. However, the AHP rules themselves remain an area of complexity requiring close attention.
• Potential misalignment of interests: The lower tax rate depends on meeting minimum holding periods, potentially giving rise to a paradoxical incentive for fund managers to hold investments longer than is optimal for the fund and its investors, where an attractive early exit opportunity arises.
• Credit funds stand to benefit: Targeted amendments to the AHP rules, together with the removal of the capital or income source payment distinction, should make it easier for credit funds to qualify, including removal of restrictions on direct lending funds, better treatment of debt drawdowns and early prepayments, and more flexible rules for unwanted short-term investments.
• Non-UK residents face new compliance burdens: The territorial scope provisions mean that non-UK resident carry holders may need to track UK workdays carefully and assess whether funds meet AHP requirements before travelling to the UK. A 60 UK workday threshold provides some relief, but only for carry that is expected to be qualifying at the time of the first UK workday.

Download our full analysis of the UK carried interest changes below, including those taking effect from April 2026.