What is Carried Interest? Everything you need to know

While a great number of terms are well-known to us, many people may not know what 'Carried Interest' is.

If you're interested in learning what this term means, here is everything you need to know.

UK Chancellor Rachel Reeves announces tax hike on Carried Interest

Today (Wednesday, October 30), UK Chancellor Rachel Reeves announced that there would be a 32% rise in taxes paid on Carried Interest.

This would see rates rise from 28% from April 2025.

The Chancellor also said she would deliver reforms to Carried Interest rules to make the system "simpler, fairer and better targeted".

What is Carried Interest? Everything you need to know

According to the legal experts over at Dentons, Carried Interest represents the share of profits from a fund's investments paid to fund managers in relation to fun management activities.

Typically, a fund manager will receive a management fee as a percentage of assets under management (usually around 1% or 2%).

Additionally, the fund manager would be entitled to a portion of the profits on investments after investors have received their commitment plus a preferred return.

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It is this allocation of profit that represents the Carried Interest.

The Fund Manager will then decide how to divvy this up between its team members.

The experts add: "When considered from an employment perspective, carry is a valuable status indicator and can be a key attraction for individuals."

The Chancellor has announced that taxes paid on Carried Interest will rise to 32%.