Carried Interest Tax Calculator 2026 β PE/VC Fund Managers
Calculate carried interest taxation at 23.8% US LTCG rate (3yr+ hold) or ordinary income rate for shorter holds. Includes UK carried interest comparison at 2026 rates.
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Quick:
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E.g. 2.5Γ = returning $250M on $100M fund
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Typical: 6β8% annually (enter as total period %)
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Standard: 20% of profits above hurdle
US Tax (2026)
$28,000,000
Carry Amount
23.8%
Effective Rate (LTCG)
$6,664,000
Total US Tax
$21,336,000
After-Tax Carry
UK Tax (April 2026)
Β£22,400,000
Carry Amount (GBP est.)
~45%
Effective Rate
Β£7,140,000
UK Tax (est.)
Β£15,260,000
After-Tax Carry
$10,152,000
US Tax Saved (LTCG vs Ordinary)
$7,000,000
Preferred Return (Hurdle)
$150,000,000
Gross Fund Profit
$122,000,000
LP Share (80%)
Waterfall Calculation
| Waterfall Step | Amount |
|---|---|
| Fund invested capital returned | $100,000,000 |
| Preferred return / hurdle (8%) | $7,000,000 |
| Remaining profit (above hurdle) | $143,000,000 |
| GP catch-up (if applicable) | $0 |
| LP share of remaining profit (80%) | $114,400,000 |
| GP carry (20% of profits above hurdle) | $28,600,000 |
| Total fund value returned | $250,000,000 |
US Carried Interest Tax Rules (2026)
Under Section 1061 (applicable partnership interests), carried interest qualifies for LTCG rates only when the underlying partnership assets are held for more than 3 years.
US Rate Summary
Hold > 3 years: 20% LTCG + 3.8% NIIT = 23.8% total
Hold 1β3 years: Ordinary income rate (up to 37%) + 3.8% NIIT = up to 40.8%
Hold < 1 year: Ordinary income rate (same as 1β3 year rule under Β§1061)
Hold 1β3 years: Ordinary income rate (up to 37%) + 3.8% NIIT = up to 40.8%
Hold < 1 year: Ordinary income rate (same as 1β3 year rule under Β§1061)
UK April 2026 Rules
From April 2025: 32% flat rate on carried interest
From April 2026: Taxed as income (up to 45%) with 72.5% base cost allowance
Effective rate = 45% Γ (1 β 72.5%) β 12.4% (on eligible carry)
Note: rules subject to HMRC final guidance β consult a UK tax adviser
From April 2026: Taxed as income (up to 45%) with 72.5% base cost allowance
Effective rate = 45% Γ (1 β 72.5%) β 12.4% (on eligible carry)
Note: rules subject to HMRC final guidance β consult a UK tax adviser
Extended
US vs UK Carried Interest Comparison
Side-by-side comparison at multiple fund return levels under US and UK tax rules
US vs UK Carried Interest Tax at Multiple Fund Return Levels
Using your entered fund size, carry%, and hurdle. Assumes 3-year+ hold for US LTCG; UK uses April 2026 income-based rate with 72.5% allowance (estimated).
| Fund Return | Carry Amount | US Tax (23.8%) | US After-Tax | UK Tax (est.) | UK After-Tax | US Advantage |
|---|
Frequently Asked Questions
What is carried interest and who receives it?
Carried interest (or "carry") is the share of profits β typically 20% β that private equity, venture capital, and hedge fund managers receive as compensation for generating returns above a hurdle rate. It is treated as a capital gain rather than ordinary income in the US, provided certain holding periods are met.
What is the 3-year holding period rule for US carried interest?
Under the Tax Cuts and Jobs Act (Section 1061, effective 2018), carried interest only qualifies for long-term capital gains rates (currently 20% + 3.8% NIIT = 23.8%) if the underlying investments are held for MORE than 3 years. If held 1β3 years, the gain is recharacterized as short-term capital gain and taxed as ordinary income (up to 37% + 3.8% = 40.8%).
How is carried interest taxed in the UK from April 2026?
The UK changed its carried interest tax treatment in its Autumn Budget 2024. From April 2025, carry is taxed at 32% (up from 28%). From April 2026, carry will be taxed as income with a possible elected 72.5% base cost allowance, effectively taxing it at income tax rates (up to 45%) minus the allowance. The exact April 2026 rules require specialist advice.
What is a hurdle rate in private equity?
A hurdle rate (or preferred return) is the minimum annual return a fund must achieve before the general partner receives any carry. Typical hurdle rates are 6β8% per year. The GP only earns the 20% carry on profits above the hurdle, and there is often a "catch-up" provision allowing the GP to receive a larger share until the 80/20 split is established.
Can carried interest be invested in a Qualified Opportunity Zone to defer tax?
Yes. Fund managers can elect to roll carry into a Qualified Opportunity Zone (QOZ) investment to defer recognition of the carried interest gain. However, Section 1061's 3-year rule still applies when the QOZ investment is eventually sold. This is a complex strategy that requires specialist tax counsel.