Income Tax Act 2007 section 809EZD

Sums treated as "carried interest" for purposes of section 809EZB

Section 809EZD sets out the circumstances in which certain sums arising to an individual from an investment scheme are automatically treated as carried interest, and therefore excluded from being taxed as disguised investment management fees.

• A sum paid to an individual from scheme profits qualifies as carried interest if it arises only after substantially all participant investments have been repaid and external investors have received a preferred return.
• The same treatment applies on a deal-by-deal basis, where the sum arises from profits on a particular investment, provided the relevant participants have been repaid and external investors among them have received their preferred return on the relevant investments.
• The preferred return is defined as a minimum return equivalent to compound interest at 6% per annum, with annual rests, calculated over the entire period the money was invested in the scheme.
• Any sum meeting either of these two tests is automatically treated as carried interest without needing to satisfy the separate detailed conditions that would otherwise apply.