IFM37850 - Carried interest: tax packs

Tax Packs

Many fund managers are provided with a “tax pack” or similar document by their firm which contains details of the carried interest and other sums they have received and may explain how those amounts should be reported on their tax return.

There is no statutory obligation on fund managers to obtain a tax pack or disclose it in their tax return. The absence of a tax pack would not by itself cause HMRC to open a compliance check.

However, evidence shows that a detailed tax pack provided to a fund manager reduces the risk of errors in a tax return and, where HMRC is provided with a copy of the tax pack, the likelihood of a compliance check being opened is reduced.

What could a tax pack include?

The contents of any tax pack is a commercial matter for firms and fund managers to determine. However, in order to reduce the risk of compliance checks being opened, HMRC would expect the tax pack to give the individual sufficient information to explain the sums in their return.

Some examples of information that could be included are as follows:

  • Details of the tax year to which the tax pack relates.
  • Details of the carried interest received by the individual in the tax year (i.e., whether the sums are dividends, interest or gains), including guidance on how they should be reported on the individual’s self-assessment return.
  • Details of the underlying fund structures from which the carried interest have arisen.
  • In respect of gains other than carried interest, details of the applicable acquisition and disposal costs, dates of acquisition and disposal and any other allowable deductions.
  • If the individual will make any applicable claims or elections, confirmation that the relevant conditions to make such an election are satisfied.
  • In respect of any amounts to be reported as carried interest, confirmation that the income based carried interest (IBCI) rules do not apply.

This list is not exhaustive and what is appropriate will vary according to individual fund manager’s particular circumstances and relevant fund structures.

HMRC also recognises that tax packs will typically make assumptions about the individual fund managers (for example, it might be assumed that they are UK resident). Ideally such assumptions will be made clear in the pack itself.