Two significant UK developments are reshaping how asset management executives are taxed and classified. From 6 April 2026, all carried interest is taxed as trading income rather than under the capital gains regime, materially changing effective rates and widening the population caught, including non-UK residents. Separately, the Supreme Court's decision in HMRC v BlueCrest Capital Management (UK) LLP has narrowed the scope for LLP members to argue "significant influence" over partnership affairs, increasing the risk that senior investment professionals are taxed as employees. These developments are particularly relevant to heads of tax and to reward at hedge funds, private equity houses and other asset managers operating through UK LLPs, and to their UK and non-UK resident executives and portfolio managers.
New carried interest regime
Since 6 April 2026, carried interest arising to UK asset management executives is charged to income tax and Class 4 National Insurance Contributions as profits of a deemed trade, replacing the previous capital gains treatment. The change affects both new and existing carried interest arrangements.
"Qualifying" carried interest, broadly determined by a fund's average holding period, benefits from a 72.5% multiplier, giving an effective top tax rate of around 34.1%. “Non-qualifying” carry is taxed at up to 47%. Qualification turns on a fund's weighted "average holding period" (AHP) for its investments, built on the existing income-based carried interest rules: carry from funds with a sufficiently long AHP (broadly reflecting longer-term investment strategies, such as typical private equity or infrastructure holds) qualifies for the multiplier, while carry from shorter-term or high-turnover strategies more commonly seen in hedge funds will not.
The reforms also expand the definitions of "investment scheme" and "investment management services" and remove the previous employment-related securities safe harbour, drawing more individuals and structures into scope.
Critically, non-UK tax residents are now subject to UK tax on carried interest to the extent it is attributable to UK duties, a fundamental change for internationally mobile executives and globally structured fund groups.
BlueCrest and the salaried members rules
The salaried members rules were introduced in 2014 to prevent LLP members who function, in substance, as employees from accessing the tax advantages of self-employed partner status, notably exemption from employer's National Insurance and PAYE withholding. A member is taxed as an employee if three conditions are all met; failing any one of the conditions preserves partner status.
On 1 July 2026, the Supreme Court dismissed BlueCrest's appeal, confirming HMRC's narrow interpretation of "significant influence" (Condition B) under the salaried members rules.
Influence must derive from a member's legally enforceable rights under the LLP's governance framework, and must extend to the LLP's affairs as a whole, not merely to a desk, team or portfolio. Economic importance, investment authority or profit generation are not, of themselves, sufficient. The Condition B question for BlueCrest's own members has been remitted to the First-tier Tribunal.
Conclusion
Together, these developments demand a fresh look at reward structures across UK asset management firms. Firms with LLP structures should revisit governance documentation and delegated authorities against the narrower BlueCrest test. It is expected that HMRC will scrutinise such structures closely.
While qualifying carried interest remains attractive compared with alternative reward structures, the complexities of the new regime are likely to require additional record keeping – to track the fund’s AHP and to count UK workdays for non-UK based executives. Existing carry arrangements should be reviewed, and new carry schemes should be designed, to ensure compliance with the new rules and to optimise the outcome for both UK and non-UK executives that work in the UK.
