It is clear, therefore, that carried interest only generates returns after the relevant investments have been held for a significant period, which is one of the key indications of investment activity.
But critics of the status quo argue that the fact that carried interest is generally acquired by the individuals for only a nominal payment at the outset undermines the case that it is an investment return for those individuals.
However, against that it could be said that it is perfectly justifiable for there to be a low initial acquisition cost given that no assets have even been identified let alone acquired at that point.
The fund managers run a significant risk that the carry will not pay out anything and, even if it does, it is likely to be several years later. You could not in such circumstances apply anything other than a limited value to the future success of those arrangements.
It looks very much like Labour will change the rules if they win the election on July 4. In which case, this historic treatment may end up being of purely historic interest.
It is a very targeted change, which implies there is no broader plan to equalise the rates of tax on capital gains and income, which has been proposed in some quarters.
It does, however, risk leaving the UK as being seen as an outlier compared to other jurisdictions in how it taxes carried interest.
How this impacts the asset management industry in this country will be watched with some concern.
James Burton is a partner in the global tax team at A&O Shearman
