Call for input – proposed changes to Carried Interest rules

In line with our predictions in April this year (How will the upcoming general election influence future changes in executive remuneration?), the Government will increase  the rate of CGT on Carried Interest to 32% – with a view on overhauling the system and putting more Carry into the income tax regime (rather than keeping some within the CGT regime). With effect from April 2026, Carry will be subject to income tax at the recipient’s marginal rate, unless it qualifies for a preferential rate, which would bring the tax and NIC charge down to about 34.1%.

Whilst, on a fundamental level, we disagree with the re-characterisation proposed (and will continue to make such representations when offered the opportunity) the next task is to make sure that any of the proposed changes are as fair and balanced as possible.

As part of the consultation process, the amount of co-investment required from participants and the holding period are likely to be two key areas for discussion about what will qualify for the more favourable tax treatment.

MM&K produces market-leading compensation surveys for the private equity sectors in the UK, Europe and North America. Our surveys include extensive data on Carry, which may be helpful to both private equity firms and government as part of the consultation process.

MM&K will be submitting our response to the consultation (the deadline for submissions is 31 January 2025) and are talking to our PE clients to gauge their thoughts and reactions.

Many may wish to make their own submissions but if you would like to give your opinion on these two matters – or, indeed, discuss anything else connected to the proposed changes, through MM&K  – please contact Stuart James (stuart.james@mm-k.com) in the first instance.

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