Carried Interest Tax UK 2026/27 | Income Tax and NIC

From 6 April 2026, the UK carried-interest regime sits within the Income Tax framework rather than using a Capital Gains Tax rate for the reward. The individual is generally treated as carrying on a trade, and carried interest is treated as trading profits subject to the statutory rules. Where the carried interest is qualifying, the legislation applies a 72.5% multiplier to qualifying profits before the resulting amount is brought into the Income Tax calculation. Applicable Class 4 National Insurance can also matter.

This is a change in tax character and calculation method, not a 72.5% tax rate. HMRC's revised regime guidance says the regime takes effect from 6 April 2026. The GOV.UK Capital Gains Tax guidance also says that Income Tax and National Insurance apply to carried interest received from that date instead of CGT.

What changed for 2026/27?

For the 2025/26 tax year, carried interest could appear in the CGT framework, with a 32% CGT rate for carried interest under the then-current rules. From 6 April 2026, HMRC's published policy is that the revised regime treats carried interest wholly within Income Tax. There is therefore no applicable carried-interest CGT rate listed for 2026/27.

The change affects the computation, the return sections used and the potential interaction with payments on account. It should not be reduced to a comparison of “32% CGT versus 45% Income Tax” without checking the qualifying-profit multiplier, permitted deductions, income bands, residence and National Insurance position.

The 72.5% multiplier in plain English

The revised regime distinguishes between carried interest that meets the qualifying conditions and amounts that do not. The HMRC policy explanation says that, where carried interest is qualifying, the amount treated as trading profits is 72.5% of the qualifying profits. The qualifying amount depends on the statutory average holding-period rules and any permitted deductions.

Illustrative calculation

Assume an individual has £100,000 of qualifying carried interest before permitted deductions and the full amount is within the qualifying-profit calculation. A simple illustration is:

The £72,500 is not the final tax bill. Income Tax depends on the individual's total taxable income, allowances, rate bands, Scottish status where relevant and other income. Class 4 National Insurance depends on the applicable contribution rules. The example also does not decide whether the arrangement is qualifying, whether deductions are permitted or when the amount arises.

Who can be within the regime?

The revised regime can affect an individual who receives carried interest where the individual is UK tax resident or the carried interest relates to investment-management services performed in the UK. HMRC's policy explanation describes the regime as applying where an individual performs investment-management services directly or indirectly in respect of an investment scheme and carried interest arises under those arrangements.

That scope is wider than simply asking where a fund is incorporated or where a payment account is located. Residence, duties, employment or partnership structure, the investment scheme and the contractual entitlement all need to be reviewed. A non-UK resident can still need specialist analysis if the carried interest relates to UK services.

Average holding period and qualifying status

The 72.5% treatment is linked to the concept of qualifying carried interest. HMRC's policy material describes qualifying profits and an average holding-period test. The legislation contains the operative definitions, elections and conditions; a short holding period can produce a different result from a long-term investment, and the computation cannot be inferred from the date of payment alone.

Keep a schedule for each relevant investment scheme showing:

• the scheme start and investment dates;
• the assets and investments included in the holding-period calculation;
• the service and entitlement documents;
• the carried-interest amount and payment date;
• permitted deductions and expenses; and
• any amounts arising to connected persons or through an entity.

Do not assume that a fund's internal performance report is enough for Self Assessment. The tax computation should reconcile the legal entitlement, the statutory definition and the information supplied by the fund or employer.

Self Assessment and payments on account

HMRC's Agent Update issue 145 says HMRC would publish further guidance on how to declare carried interest as trading profits for 2026/27. It also warns that affected individuals may need to consider the impact on Self Assessment payments on account.

That means the filing workflow should be checked against the current HMRC return guidance when the 2026/27 return is prepared. Keep the prior-year treatment separate: carried interest received in 2025/26 is not automatically reclassified just because the 2026/27 regime exists.

The amount can also change the timing of cash needs. A person who previously expected a CGT payment may need to model Income Tax and Class 4 NIC, together with any payment-on-account consequences. Use the Salary Calculator→ for general Income Tax scenario work only; it does not model the carried-interest regime or replace the specialist computation.

Arising date, elections and permitted deductions

The payment date is not always the only date that matters. The revised legislation sets out circumstances in which carried interest is treated as arising and provides for an election to treat it as arising at an earlier time. A statement showing a cash distribution is therefore only one part of the file. Review the entitlement terms, vesting or allocation event, any election made, and the date on which the amount became taxable under the statutory rules.

The 72.5% calculation is applied to qualifying profits after applicable permitted deductions, not blindly to every amount shown on a fund statement. The permitted-deduction rules are statutory and may not match every expense the individual paid personally. Keep an itemised schedule showing the gross carried-interest amount, each deduction claimed, the rule relied on, and the remaining qualifying profits. If a cost is paid by the fund or employer, do not deduct it again in the individual's calculation.

An election or allocation can affect more than one tax year. Before making a choice, compare the timing of the taxable amount with the individual's other trading income, rate bands, residence position and payments on account. The attractive result in one year may create a higher cash requirement in the next year or an amended return. Record the decision and obtain advice before an election deadline; do not infer a deadline from the date of the distribution alone.

How the average holding period affects the result

The qualifying treatment is connected to the average holding period of the relevant investment scheme. It is not enough to select the investment with the longest holding period or to use the date on which the fund closed. The computation may require the scheme's relevant investments, disposals, weighting and the statutory definition of the average period. A fund administrator's summary is useful evidence, but the individual and adviser should check that it covers the investments and period used in the statutory computation.

Create a supporting schedule for each scheme with the investment dates, disposal dates, relevant values, excluded or non-relevant assets, and the calculation supplied by the administrator. Keep a second schedule for amounts that are not qualifying carried interest. This prevents an ordinary investment return, salary or bonus from being included simply because it appears in the same distribution statement. Where several schemes or parallel vehicles are involved, label them separately and reconcile each allocation to the partnership or employment agreement.

Residence, UK duties and cross-border work

The territorial scope is not decided by the fund's incorporation country or the bank account receiving the payment. HMRC's published measure can affect UK-resident individuals and can also affect non-UK residents where the carried interest relates to investment-management services performed in the UK. A mixed working pattern therefore needs a day-by-day record of duties, work location, relevant role and the arrangement under which the carried interest arises.

Cross-border cases may also involve treaty residence, foreign tax, partnership reporting and a risk of double taxation. Do not reduce the analysis to the percentage of time spent in London or the country printed on an investor report. Preserve travel records, contracts, work allocation, residence evidence and any foreign tax statement, then ask a specialist to apply the UK statutory and treaty rules. The 72.5% multiplier does not settle residence, source or foreign-credit questions.

A practical 2026/27 review checklist

Before preparing the return, the individual or adviser should be able to answer:

• Is the payment carried interest within the statutory definition, or another type of remuneration or investment return?
• When did the amount arise under the regime, and was an earlier-arising election made?
• Which investment-management services and scheme are connected to the amount?
• What average holding period and qualifying-profit calculation support the 72.5% treatment?
• Which deductions are permitted, and are they already reflected in the fund statement?
• Does the territorial rule apply because of UK residence or UK services?
• How will the trading profit, Income Tax, Class 4 NIC and payments on account be reported?

If any answer is unresolved, mark the computation provisional. A higher carried-interest payment should not be filed using a prior-year CGT template simply because the fund statement looks similar. Keep the old and new calculations separate, identify the operative date, and retain the source version used for the 2026/27 return.

Practical records and review points

Before finalising a 2026/27 calculation, gather:

• the fund partnership, employment or carried-interest agreement;
• the investment scheme's holding-period and distribution schedule;
• the date and amount on which carried interest arose;
• the UK duties and residence facts for the relevant period;
• permitted-deduction evidence;
• earlier carried-interest amounts and any elections; and
• the fund administrator's tax reporting information.

The revised regime can interact with partnership allocations, employment arrangements, trusts, overseas services and anti-avoidance provisions. Those are signals to obtain specialist tax advice, not reasons to apply a generic percentage.

Frequently Asked Questions

For related calculations, see the UK Capital Gains Tax guide, National Insurance guide and UK tax-year-end planning guide. Check the latest HMRC carried-interest guidance before filing the 2026/27 Self Assessment return.

Official sources

• HMRC: Revised tax regime for carried interest
• HMRC: Annex A rates and allowances
• GOV.UK: Capital Gains Tax rates
• HMRC: Agent Update issue 145
• UK Finance Act 2026