Private equity managers received £5.4bn in carried interest distributions in the 2024/25 tax year, up 52% from £3.5bn the previous year, according to data from HM Revenue and Customs (HMRC).
The HMRC data showed fund executives paid £1.5bn in capital gains tax on these realisations over the same period, an increase of 58% from £900m. Over the past five years, tax paid on carried interest reached £5.7bn.
Carried interest represents the share of capital profits allocated to fund managers upon the successful exit of portfolio assets, typically following a multi-year investment lifecycle once minimum hurdle rates are achieved for limited partners.
The surge in declared gains comes during a tight liquidity environment, where general partners have increasingly turned to continuation funds, secondary sales and structured liquidity transactions to return capital to institutional investors.
A total of 3,890 individuals reported carried interest gains during the tax year, averaging £1.4m each. Male executives received £5bn of the total distributions, while female managers accounted for £366m.
David Portman, tax partner at Lubbock Fine, said: “Carried interest payouts made by private firms jumped very sharply in the last year. That increase in gains is usefully timed as they have just escaped an increase in tax on carried interest from 28% to an effective rate of 32% from the following year.
“Some PE funds or hedge funds could have crystallised gains early so as to book profits before the increase in the tax. For the sale of a PE-owned business that is harder to do.”
He added: “The amount of tax paid by private equity firms and hedge funds on carried interest highlights the importance of this industry to HM Treasury.”
