Taxation of Chargeable Gains Act 1992 section 103KFA

Election for carried interest gains to be chargeable as scheme profits arise

Section 103KFA allows an individual who manages an investment scheme to elect that their carried interest gains are taxed progressively as the scheme's profits arise, rather than waiting until the carried interest is actually received.

• An eligible individual can make an irrevocable election in respect of a specific investment scheme, provided section 103KA applies or is reasonably expected to apply to them and the scheme.
• For each tax year the election is in effect, a chargeable gain is deemed to arise immediately before the end of that year, calculated by assuming all scheme investments were disposed of (unrealised investments at cost), all relevant income received, and all profits distributed — then reducing the result by any gains already deemed under this section for the scheme in earlier years.
• Where distributions were actually made to external investors before the relevant tax year and those distributions affect the carried interest amount, the deemed calculation must reflect those prior distributions, but any amount that would notionally have arisen in an earlier year is treated as arising in the current year instead.
• The deemed gain is treated as arising on the disposal of an asset outside the United Kingdom only to the extent the individual performs their investment management services for the scheme outside the United Kingdom; the election must be notified to HMRC by 31 January following the end of the first tax year for which it is to have effect.