Proposal to amend UK carried interest: IBCI rules

Following the Autumn 2024 budget announcement, the Chancellor of the Exchequer outlined the government’s proposals to reform the tax treatment of carried interest. This announcement came after a call for evidence that closed on 30 August. As the next step in this process, the government initiated a further consultation, which closed on 31 January 2025.

DLA Piper is among a select group of advisors and stakeholders that have engaged in additional discussions with HMRC and HM Treasury regarding the proposed changes, and please see our submitted responses to HMRC and HM Treasury (in two parts for ease): Part 1 and Part 2.

A key aspect of the proposed changes involves the expanded Income Based Carried Interest (IBCI) test. In this third instalment, we will explore what the IBCI test is, how it is calculated, and crucially what it means for fund managers.

This article examines the IBCI legislation in its current form. Although HMRC has indicated that there will likely be some changes made to the IBCI rules, particularly the more stringent rules as they apply to credit funds, a major overhaul of the IBCI rules is not currently expected. Any changes are anticipated to sit within the existing IBCI legislative framework, making it important to understand how the current rules operate.