Exemption from attribution of carried interest | KPMG | UK
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Exemption from attribution of carried interest

Exemption from attribution of carried interest

HMRC’s proposed solution to avoid double tax on carry in trusts distributed to a beneficiary may result in unexpected tax liabilities.


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Who should read this? 

Trusts that make distributions of carry, and their beneficiaries.

Summary of proposal 

HM Treasury indicated that they would introduce provisions to avoid circumstances where double tax is suffered on carry in trusts that is distributed to a beneficiary (for example, to enable the beneficiary to pay the tax suffered on the carried interest under the new regime). These provisions are contained in Finance Bill 2017.

The rules have the effect that where carried interest arises to an individual, no other chargeable gain should be treated as accruing in respect of that disposal. This applies such that the gains calculated under basic partnership principles and allocated to a trust are not deemed to arise to the trustees for these purposes and cannot be matched to future capital payments. Instead, any capital payment (which could be of carried interest where the cash is needed to settle a tax bill) will be charged to tax under the basic principles of s.87 and matched to other capital gains that may be in the s.87 pool.  Because of the way the pool operates and depending on the timing of the original gains already in the pool, this capital payment could be matched to historic gains and potentially attract a surcharge (meaning tax at up to 32%).

In summary, HMRC’s proposed solution means that in many cases it will not be possible to make distributions of carry from a trust without suffering further tax. Particularly where trusts already have gains in the s87 pool, it will be necessary to carefully consider the potential matching before distributions are made in order to plan for the final tax liability.


The changes take effect for all carried interest arising in connection with fund disposals on or after 8 July 2015 i.e. the rules have retrospective implications. 

Our view 

Many individuals may therefore want to consider distributing the carry from the trust before 5 April where they are becoming deemed domiciled. Whether or not this should be done and the tax implications thereof are complex and detailed advice should be sought before acting. 


Russell Gibson +44 (0)20 7694 3071


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