IFM37450 - Prevention of double taxation: Carried interest paid to a connected company

Carried interest paid to a connected company

TCGA92/S103KE

ITA07/S809EZDB

A capital gain may be charged on carried interest which has arisen to a fund manager by way of a connected company (ITA07/S809EZDB) (IFM37264).

Double taxation relief can be considered under TCGA92/S103KE on corporation tax paid by the connected company and, if there is a distribution to the fund manager, income tax paid on that distribution. Relief will only be available if the other tax paid is directly relatable to the carried interest amount received.

Example

Carried interest is received by a UK resident company. The UK resident company is considered to be a company connected to a UK resident fund manager under ITA07/S809EZDB(1). For the purposes of this example the fund manager does not have access to any of the exemptions from the enjoyment conditions as given by ITA07/S809EZDB(6) or (7). A capital gains charge under the carried interest rules will therefore be levied on the fund manager.

The company pays corporation tax on the carried interest amount. In addition, the net amount after tax is distributed to the fund manager who pays income tax on this. A claim under TCGA92/S103KE can be made to offset the full amount of carried interest arising against the corporation tax paid by the company and the income tax paid by the individual executive.

The amount of relief will be restricted in accordance with TCGA92/S103KE(6) (IFM37420).

Relief will be considered on each amount separately.