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For the latest New Developments, see ND.2740 and ND.2803.

The reward paid to many investment fund managers comprises two elements: a management fee and a performance fee.

For some managers, the performance-linked reward is not structured as a fee. Instead, the individual managers are given a direct participation in the underlying vehicle, generally a partnership. As a result, the manager shares in the profits of the fund once an agreed level of performance has been reached. Carried interest awarded to the managers of private equity funds is an example of such a performance-linked interest.

In addition to the disguised investment management fees legislation in ITA 2007, ss 809EZA–809EZH (Pt 13, Ch 5E) which ensures that the management fees received are charged to income tax (see B5.646), further legislation in TCGA 1992, ss 103KA–103KH (Pt III, Ch 5) ensures that carried interest is charged to capital gains tax in full. However, income-based carried interest still forms part of the management fee chargeable to income tax (see B5.646). 'Carried interest' and 'income-based carried interest' have the