Paragraph 2 Sums treated as “carried interest”F1

(1)

A sum arising to an individual from an investment scheme under arrangements which falls within sub-paragraph (2) or (3)—

(a)

is to be assumed to meet the conditions in paragraph 1(2),

(b)

is to be assumed to not be a sum in relation to which paragraph 1(3) applies, and

(c)

accordingly, is to be treated as constituting “carried interest”.

(2)

A sum falls within this sub-paragraph if, under the arrangements, it is to, or may, arise to the individual out of profits on the investments made for the purposes of the scheme, but only after—

(a)

all, or substantially all, of the investments in the scheme made by the participants have been repaid to the participants, and

(b)

each external investor has received a preferred return on all, or substantially all, of the investor's investments in the scheme.

(3)

A sum falls within this sub-paragraph if, under the arrangements, it is to, or may, arise to the individual out of profits on a particular investment made for the purposes of the scheme, but only after—

(a)

all, or substantially all, of the relevant investments made by participants have been repaid to those participants, and

(b)

each of those participants who is an external investor has received a preferred return on all, or substantially all, of the investor's relevant investments;

and for this purpose “relevant investments” means those investments in the scheme to which the particular investment made for the purposes of the scheme is attributable.

(4)

In this paragraph “preferred return” means a return of not less than the amount that would be payable on the investment by way of interest if—

(a)

compound interest were payable on the investment for the whole of the period during which it was invested in the scheme, and

(b)

the interest were calculated at a rate of 6% per annum, with annual rests.

Annotations

Textual amendments

F1: Sch. A1 inserted (for the tax year 2026-27 and subsequent tax years (but in relation to investment management services whenever performed)) by Finance Act 2026 (c. 11), s. 58(6), Sch. 11 para. 1