Section 23I | Tax treatment of carried interest

(1)This section applies where—

(a)an individual performs investment management services in any tax year directly or indirectly in respect of an investment scheme under any arrangements, and

(b)under the arrangements, one or more sums of carried interest arise to the individual from an investment scheme in a tax year.

(2)For income tax purposes—

(a)the individual is treated as carrying on a trade, by virtue of the arrangements, for the tax year referred to in subsection (1)(b),

(b)the amount to be treated as the profits of the trade for that tax year is the sum of the non-qualifying profits of the trade and 72.5% of the qualifying profits of the trade (see subsection (3)), and

(c)the individual is treated as the person receiving or entitled to those profits.

(3)In subsection (2)(b)—

(a)the amount of the non-qualifying profits of the trade is—

(i)the total amount of carried interest arising to the individual from any investment scheme in the tax year under the arrangements that is not qualifying carried interest, minus

(ii)the proportion of any permitted deduction for the tax year (see section 23N) that is the same as the proportion of the total amount of carried interest that is not qualifying carried interest;

(b)the amount of the qualifying profits of the trade is—

(i)the total amount of qualifying carried interest arising to the individual from any investment scheme in the tax year under the arrangements, minus

(ii)the proportion of any permitted deduction for the tax year that is the same as the proportion of the total amount of carried interest that is qualifying carried interest.

(4)In Schedule A1—

(a)Part 1 explains what it means for a sum arising to an individual from an investment scheme under arrangements to be “carried interest” for the purposes of this group of sections and that Schedule;

(b)Part 2 sets out certain circumstances in which a sum arising to another person is treated as arising to the individual;

(c)Part 3 sets out how to determine the extent to which carried interest arising to an individual from an investment scheme is qualifying carried interest;

(d)Part 4 allows for an election to be made to treat carried interest as arising at an earlier time.

(5)A sum of carried interest arising to an individual from an investment scheme in a tax year is to be treated for the purposes of this section as not being a sum of carried interest to the extent that—

(a)it is chargeable to income tax on the individual by virtue of section 62 (earnings) or Part 7 of ITEPA 2003 (employment income relating to securities) in the tax year, or

(b)an election made under section 23J that has effect for the tax year applies in relation to the sum.