Today’s Autumn Statement has provided comfort that the government does not intend managers of long term investment funds to be caught by proposed new rules which would restrict the extent to which they can receive capital (rather than income) treatment for their carried interest.

The government has recently concluded a consultation which, broadly, had the objective of determining the best way of limiting the availability of capital treatment of carried interest so that it only applies in relation to genuine investment funds (the “Consultation”). The Consultation contained two proposals for determining whether a fund is an investment fund. The first proposal was whether the fund wholly (or substantially wholly) carries out certain specified activities and the second was based on the length of time for which the fund holds its assets.

It had been thought that the government was leaning towards the second proposal. The wording of the Autumn Statement does not directly address the point, but helpfully states that an “award will be subject to income tax, unless the underlying fund undertakes long term investment activity”. We understand that the government envisages that real estate and private equity funds should make long term investments for these purposes, but otherwise quite what is meant by this is still not entirely clear. We expect, however, to have full detail of the new rules, including what HMRC consider to be long term investments, when the draft Finance Bill 2016 is published (which is expected to be on 9 December).