As of 6 April 2026, the UK tax treatment of carried interest has changed fundamentally. For internationally mobile private equity professionals, especially those with a history of UK and overseas work, the new rules have raised a more practical question than a technical one: if I stay in the UK and start receiving carry from 2026, what does it mean for me?
The answer depends on more than one headline rate. Carried interest is no longer taxed under Capital Gains Tax rules. Instead, it is brought fully within the Income Tax framework, with most qualifying carry benefiting from a reduced effective rate of 34%, while non-qualifying carry may be subject to full Income Tax and National Insurance rates.
For someone who is a UK resident, formerly non-domiciled, has spent time working in both the UK and the UAE, and expects significant carry payments over the next five years, the implications are material. So too are the planning questions.
Case study: carried interest planning for a UK‑resident fund manager
Imagine the following scenario. You are a UK resident and formerly resident but non-domiciled. You have lived in the UK for several years but have also spent time working in the UAE between periods of UK residence. You are originally from France, your spouse is from Italy, and you expect meaningful carried interest payments over the next five years.
For now, you plan to remain a UK resident for another four years while your children finish their education.
At first glance, this may seem like a simple question of tax rates. In reality, it is more nuanced. From 6 April 2026, the UK will tax carried interest as income rather than capital gains. This is a major shift, and makes the classification of the carry, the location of your work, and any future change especially important.
Will your carry qualify?
This is the critical starting point. Not all carry interest will be taxed at the same effective rate. The rules focus on the fund’s average asset holding period (AHP). Broadly:
- If the weighted average holding period is less than 40 months, the carry is treated as income-based and taxed at full rates
- If the AHP meets the threshold, a multiplier applies, producing an effective combined tax rate of around 34%
In practical terms, this means you should not assume your carry will qualify for the lower rate. You need confirmation from the fund and advice on your own position. Broadly, if the average asset holding period is around 40 months, the carry should be qualifying, but this must be carefully checked.
What if you remain a UK resident?
If you remain a UK resident, the UK will remain central to the tax analysis. The broad position is that the carried interest received from 6 April 2026 is taxed as income rather than capital, although carried interest derived from services performed in earlier periods of non-residence in the UAE would not be taxed. That is a fundamental change. In the 2025/26 tax year, a UK-resident fund manager is taxed on carried interest at a 32% Capital Gains Tax rate, but under the new regime, it shifts fully to Income Tax.
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What if you leave the UK at a later date?
Leaving the UK may change the position, but not automatically. The government’s stated approach is that carried interest should, in principle, be taxed to the extent it relates to services performed in the UK. To work that out, it intends to use a time-based apportionment method based on UK workdays.
There are, however, important transitional rules for internationally mobile individuals.
For carry paid to a non-resident:
- UK services performed before 30 October 2024 are treated as non-UK services
- UK duties are disregarded unless the individual performs 60 or more UK workdays in the relevant tax year
- After three full tax years of non‑residence, earlier UK services can be treated as non‑UK services, provided the 60‑day threshold is not breached
This means that UK exposure may persist for a time after departure, particularly where services were performed in the UK after October 2024. Over time, however, that exposure can fall away if the conditions are met.
The government’s stated approach is that carried interest should, in principle, be taxed to the extent it relates to services performed in the UK
What if you move to the US and continue working?
This is where the planning becomes more intricate. The UK rules may still matter if you continue to work for the fund and make return visits to the UK. In broad terms, it will be important that workdays in the UK remain below the relevant thresholds and that you do not inadvertently become a UK resident again. The government’s cross-border framework is built around UK workdays and residence status.
There is also a wider cross-border issue. The UK now treats carried interest as income from 6 April 2026, while other countries may continue to treat it as capital. That can create uncertainty around how the two systems interact and whether double tax relief will work smoothly in practice. For that reason, anyone considering a move to the US or another jurisdiction where they work, should seek advice before relocating, especially if the new country may also tax the carry.1
Read also: Lombard Odier UK CEO warns Rachel Reeves over entrepreneur exodus
How much time can you still spend in the UK if you leave?
This is often the decisive point. The statutory residence test is conceptually clear but highly technical. Broadly, you are either automatically non-resident, automatically resident, or tested under the sufficient ties regime. If you leave for full-time work abroad, you may be automatically non-resident, but that concept has a precise definition that should never be assumed. Split-year treatment may also be available, but only where the statutory conditions are met.
In practical terms, ties to the UK matter greatly. Where family and accommodation remains in the UK, the number of days you can spend here without becoming resident again may be sharply reduced. In this case study, competing priorities – family, schooling and tax efficiency – need to be carefully balanced.
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learn more What should you be thinking about now?
For someone in a position similar to that of this case study, there are four immediate priorities.
1. Confirm whether the carry is qualifying and therefore likely to fall within the 34% effective rate
2. Review where and when the relevant services were performed. The UK now looks closely at UK workdays and the post-30 October 2024 service period for mobile executives.
3. If relocation is a genuine future option, model it clearly. Waiting until distributions begin may narrow the planning window. Reviewing the arrangement and understanding the reporting obligations are key for affected individuals.
4. Remember that these changes are not just about tax rates. From 6 April 2026, carried interest now falls within the Income Tax framework, and affected individuals may also need to prepare for Making Tax Digital in due course.2
For many individuals, there will be genuine trade-offs between remaining in the UK for family reasons and positioning future carry in the most efficient way
The bottom line
If you are a UK resident and expecting carried interest payments from 2026, the key question is no longer simply how much tax you might pay. It is whether your carry qualifies, how much of it is linked to UK services, and whether the future residence pattern supports your longer-term objectives.
For many individuals, there will be genuine trade-offs between remaining in the UK for family reasons and positioning future carry in the most efficient way. The earlier that analysis is done, the better.
Speak to your Lombard Odier adviser and your external tax adviser to understand how the changes could affect you.
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