The taxation of carried interest: where are we now?

The taxation of carried interest has become increasingly topical in light of the Labour Party’s plans over whether it should be taxed as income, rather than as capital gains – although there are, in the author’s view, a number of features of the private equity investment model that would point in favour of carried interest returns being properly treated as capital gains, rather than trading income. The UK currently taxes capital gains from carried interest at 28%, which is roughly middle of the pack in terms of other European jurisdictions with significant private equity industries. While some may see the current preferential tax treatment of carried interest as a generous benefit, it is crucial to keep the private equity industry in the UK competitive, particularly with other European jurisdictions.