Carried interest, or “carry,” is market standard within the private equity industry, enabling investment professionals to share in the “super profits” of an investment fund, if and when, there are any. Within hedge funds, carry often pays out in the form of “performance fees,” which work on a similar basis as carry in the PE context and align managers’ interests with those of investors. On July 21, 2025, the U.K. government published draft legislation on new carried interest tax rules (Rules), which will take effect as of April 6, 2026. Although the publication of the Rules provided no material changes from what had previously been announced on June 5, 2025, there were a number of welcome clarifications to the Rules that will further ease anxiety among the hedge fund industry. It is not expected that the final legislation, introduced by the Finance Bill 2026, will be materially different to the Rules as currently drafted. This guest article by Ellie Avni and Lewin Higgins-Green from FTI Consulting explains the motivation for the Rules, summarizes the key changes embodied in them and notes the implications for hedge fund managers. For a look at U.S. tax law in this area, see this two-part series “An Examination of the Final Carried Interest Regulations”: Part One (Feb. 4, 2021); and Part Two (Feb. 11, 2021).