Part III

Individuals, partnerships, trusts and collective investment schemes etc
Chapter 5

Carried interest

Carried interest
103KA
1
This section applies where—
a
an individual (“A”) performs investment management services directly or indirectly in respect of an investment scheme under arrangements involving at least one partnership, and
b
carried interest arises to A under the arrangements.
2
If the carried interest arises to A in connection with the disposal of one or more assets of the partnership or partnerships—
a
a chargeable gain equal to the amount of the carried interest less any permitted deductions (and no other chargeable gain or loss) is to be treated as accruing to A on the disposal, and
b
the chargeable gain is to be treated as accruing to A at the time the carried interest arises.
3
If the carried interest arises to A in circumstances other than those specified in subsection (2), a chargeable gain of an amount equal to the amount of the carried interest less any permitted deductions is to be treated as accruing to A at the time the carried interest arises.
4
Subsections (2) and (3) do not apply in relation to carried interest to the extent that—
a
it is brought into account in calculating the profits of a trade of A for the purposes of income tax for any tax year, or
b
it constitutes a co-investment repayment or return.
5
For the purpose of subsections (2) and (3) “
permitted deductions
” in relation to A means such parts of the amounts specified in subsection (6) as is just and reasonable.
6
The amounts referred to in subsection (5) are—
a
the amount of any consideration in money given to the scheme by or on behalf of A wholly and exclusively for entering into the arrangements referred to in subsection (1)(a) (but not consideration in respect of co-investments),
b
any amount that constituted earnings of A under Chapter 1 of Part 3 of
ITEPA
2003 (earnings) in respect of A's entering into those arrangements (but not any earnings in respect of co-investments or any amount of exempt income within the meaning of section 8 of that Act), and
c
any amount which, by reason of events occurring no later than the time the carried interest arises, counts as income of A under the enactments referred to in section 119A(3) in respect of A's participation in the arrangements referred to in subsection (1)(a) (but not an amount counting as income of A in respect of co-investments); and section 119A(5) applies for the purposes of this paragraph as it applies for the purposes of section 119A(4).
For the purposes of this Act no other deduction may be made from the amount of the carried interest referred to in subsection (2) or (3).
7
Where the carried interest arises to A by virtue of his or her acquisition of a right to it from another person for consideration given in money by or on behalf of A, the amount of the chargeable gain accruing to A under subsection (2) or (3) is, on the making of a claim by A under this subsection, to be regarded as reduced by the amount of the consideration.
8
In this section—
- “
co-investment
”, in relation to A, means an investment made directly or indirectly by A in the scheme, where there is no return on the investment which is not an arm's length return within the meaning of section 809EZB(2) of ITA 2007;
- “
co-investment repayment or return
” means a repayment in whole or in part of, or a return on, a co-investment;
- “
trade
” includes profession or vocation.
Word in Pt. 3 heading inserted (with effect in accordance with Sch. 22 para. 12 of the amending Act) by Finance Act 2009 (c. 10), Sch. 22 para. 9; S.I. 2010/670, art. 2
Pt. 3 Ch. 5 inserted (with effect in accordance with s. 43(2)-(4) of the amending Act) by Finance (No. 2) Act 2015 (c. 33), s. 43(1)