If you've looked at a deal sheet lately, you've probably seen a carried interest line at 15% or 20%, but rarely with an example in pounds. For leads, this is most of their pay. For angels, it's what they pay for someone else to handle the sourcing and follow-up. We've done the math for both sides below. This also covers the UK tax changes from 6 April 2026 and explains why a single-company SPV now has a 40-month time limit.
What Is Carried Interest?
Carried interest, or carry, is the part of a deal's profit given to the person who found and led the deal, but only after investors get their money back. In a syndicate deal, the lead sets the percentage (20% is common), and it is calculated at the end, based only on the profit.
The concept of carried interest goes back centuries. In Patrick Ryan's history, a Venetian merchant in 1473 wanted to sail to Constantinople but had no money for cargo. His backer would not pay him a salary for such a risky trip. Instead, she offered him 20% of any profit he brought back. He would only earn if she did too.
Today, a syndicate lead is in a similar position as that merchant. You find the deal, bring in investors, and take on the risk. The SPV now plays the role the ship once did. The carried interest you earn comes from the same profit your investors get. If the company fails and investors lose their money, you do not receive any carry either.
HMRC sees it the same way. Its Investment Funds Manual says carried interest is a share of profits given to managers when investments do well. For carry calculated on each deal, the manual says the investment must be profitable. In short, carried interest is a reward that only exists if there is growth.
You can choose the carried interest percentage. Odin's documents use 20% as an example, but its guides say many syndicates prefer 15%. Most syndicates on Odin do not charge a management fee, so carry is the lead's only pay. The percentage you pick applies only to the profit, not to the investors' original money. The next section will show this with numbers.
How Carry Is Calculated, With a Worked Example
Let's consider a school fete. The cash float goes back to whoever lent it before counting up the day's earnings, since that money was never profit. A carried interest calculation works the same way. Investors get back everything they put in first. Only what's left counts as profit, and your percentage applies just to that. No one earns carry on the original capital.
Here's a carried interest example. Suppose your syndicate puts £100,000 into one company using an SPV. You set the carry at 20%. Eight years later, the company is sold, and the syndicate's shares are worth £1,100,000.
| Step | Amount |
|---|---|
| Proceeds at exit | £1,100,000 |
| Capital returned to investors first | £100,000 |
| Profit | £1,000,000 |
| Lead's carry (20% of profit) | £200,000 |
| Investors' share of profit (80%) | £800,000 |
| Total paid to investors | £900,000 |
So when a deal sheet says 20% carry, it means 20% of the £1,000,000 gain, which is £200,000, and not 20% of the £1,100,000 that came in at exit. The original £100,000 is unaffected. An angel who put £10,000 into that raise receives £90,000, made up of their own £10,000 and £80,000 of profit, and £20,000 from their slice becomes your carry.
Now imagine the deal doesn't go well. If the shares return only £50,000, there's no profit to split. The investors get all of the £50,000 back, and you don't earn any carry.
These examples don't include fees, so you can check the numbers easily. In a real deal, both your fee and the platform's fee for running the SPV are separate charges. Later sections will explain where each fee comes from.
Deal Carry vs Fund Carry
Professional poker players often have backers who cover their tournament entry fees in return for a share of any winnings. Most of these deals include a rule called makeup. This means the player must first recover any losses the backer has paid before earning a share of future winnings. This rule differentiates deal carry from fund carry.
In a syndicate, carry is calculated separately for each deal. Each SPV keeps its own records, so if a deal wins, you get your full carry. If a deal fails, you get nothing, but that loss does not affect what you earned from a winning deal. In a fund, which is how carried interest works in private equity, all investments are tracked together. Losses are subtracted from gains before carry is calculated. This is how makeup works in venture investing.
Imagine five deals, each with £100,000 invested and a 20% carry. One company returns 10 times the investment, another returns twice the amount, one just breaks even, one returns half, and one loses everything.
| Deal | Invested | Proceeds | Profit or loss | Lead's carry at 20% |
|---|---|---|---|---|
| A | £100,000 | £1,000,000 | £900,000 | £180,000 |
| B | £100,000 | £200,000 | £100,000 | £20,000 |
| C | £100,000 | £100,000 | £0 | £0 |
| D | £100,000 | £50,000 | −£50,000 | £0 |
| E | £100,000 | £0 | −£100,000 | £0 |
| Total | £500,000 | £1,350,000 | £850,000 | £200,000 |
Now run the same five outcomes through a fund.
| Deal-by-deal carry | Fund carry | |
|---|---|---|
| Carry charged on | Each winning deal | Net profit across the portfolio |
| Losses on other deals | Don't reduce carry | Reduce carry |
| Management fee | Often none on syndicates | 2% a year is common |
| Who chooses each investment | Each investor, deal by deal | The fund manager |
| Profit carry is charged on, five-deal example | £1,000,000 | £850,000 |
| Lead's carry, five-deal example | £200,000 | £170,000 |
| Paid to investors, five-deal example | £1,150,000 | £1,180,000 |
The £30,000 difference is 20% of the £150,000 lost on deals D and E. In venture investing, returns usually follow a power law, meaning one company often makes most of the profit in a portfolio.
With deal carry, you get paid on that winning company without having to cover losses from the others. For investors, this means they pay £30,000 more in carry under the deal model. This is one reason many syndicates do not charge a management fee.
Funds do charge a management fee. 2 and 20 means 2% of the committed capital each year, plus 20% carry.
For example, a £500,000 fund pays £10,000 in fees every year, no matter how its investments perform. In The Magical Money Tree of Management Fees, Odin's Dan Gray says these fees grow with fund size much faster than returns, which is Odin's view on how the fund model has moved away from investors' interests.
Neither model is wrong. A syndicate lets each investor choose each deal and pays you carry on every winner. A fund, which Odin also administers through its fund product, gives you one commitment and one carry calculation across the whole portfolio.
Hurdle Rates and Preferred Return
A sales rep with a quota does not earn commission until they hit their quota. In some plans, once the target is reached, commission is paid on every sale, starting from the first one. Carry works similarly. Here, the quota is called the hurdle rate, and the rule that pays the lead from the first pound after investors pass the hurdle is known as the catch-up.
The hurdle is there because investors could have put their money elsewhere. The typical venture hurdle is about 7-8% per year, which is similar to what an index fund might return over the same period, with the money always available.
If an investor puts money into a startup for eight years, they want the lead to be paid only after their return beats that rate. The return investors must get before carry starts is called the preferred return.
Let's look at the deal from before, but now with an 8% hurdle that compounds each year for eight years and includes a full catch-up. The syndicate invests £100,000, the carry is 20%, and the shares return £1,100,000.
| Step | To investors | To lead |
|---|---|---|
| 1. Capital returned | £100,000 | |
| 2. Preferred return (8% a year for 8 years) | £85,093 | |
| 3. Catch-up (all to the lead until it has 20% of the profit paid so far) | £21,273 | |
| 4. Remaining £893,634 split 80/20 | £714,907 | £178,727 |
| Total | £900,000 | £200,000 |
The lead gets £200,000, which is the same amount as if there were no hurdle. In a big exit, a hurdle with a full catch-up only changes the order of payments, not the final totals. The real difference appears in smaller exits.
| Proceeds at exit | Lead's carry, no hurdle | Lead's carry, 8% hurdle and catch-up |
|---|---|---|
| £150,000 | £10,000 | £0 |
| £200,000 | £20,000 | £14,907 |
| £1,100,000 | £200,000 | £200,000 |
If the deal returns £150,000, it made a profit, but did not beat the £185,093 owed to investors at 8% per year, so the lead gets no carry.
If the deal returns £200,000, it passes the hurdle by £14,907, and the catch-up gives all of that to the lead, who still has not reached 20% of the profit. Without a catch-up, the lead would only get 20% of the profit above the hurdle. That would be £2,981 on the £200,000 exit and £182,981 on the big exit.
Hurdles are not as common in syndicate deals. Many syndicates do not charge a management fee, so carry is the lead's only compensation, and adding a hurdle can be a big ask. If your investors still want a hurdle, make sure the percentage and catch-up are included on the deal sheet from the start.
Distribution Waterfalls and Clawback
Imagine a champagne tower at a wedding. The top glass is filled first, and only when it overflows does the champagne reach the glasses below. A distribution waterfall works the same way in a deal. It decides who gets paid first when money comes in, making sure each group is paid before the next. The table earlier showed a four-step waterfall: capital, preferred return, catch-up, and finally the 80/20 split.
For a single SPV, there's one deal, one exit, one waterfall. The order of payments only gets tricky in a fund, where deals exit at different times, and managers need to know when they can get their share.
HMRC explains two ways to calculate this: over the whole fund's life or for each investment separately. The first is called a European waterfall, and the second, an American waterfall.
- With a European waterfall, investors get back all the money they put into the fund, across all deals, before the manager gets any share of the profits.
- In an American waterfall, the manager gets paid from each deal as soon as it makes a profit. This means the manager might get paid years before knowing if other deals lose money. That's why American waterfalls include a clawback, which is a promise to return extra payments if the manager was paid too much when the fund ends.
Let's look at the five earlier deals, all in one fund, exiting one after another from A to E. The carry is 20%, and there is no hurdle.
| Exit | Proceeds | American, carry paid | European, carry paid |
|---|---|---|---|
| A | £1,000,000 | £180,000 | £100,000 |
| B | £200,000 | £20,000 | £40,000 |
| C | £100,000 | £0 | £20,000 |
| D | £50,000 | £0 | £10,000 |
| E | £0 | £0 | £0 |
| Carry paid during the fund | £200,000 | £170,000 | |
| Clawback at wind-up | −£30,000 | None | |
| Final carry | £170,000 | £170,000 |
In both cases, the total ends up at £170,000, which is 20% of the fund's £850,000 net profit. The European manager gets paid more slowly and never gets too much.
The first £500,000 from deal A goes to repay all the investors' capital, so only the remaining money from A counts as profit. The American manager gets £200,000 early and gives £30,000 back to investors at the end, but this only works if that money is still available.
In a syndicate, each SPV has its own deal sheet and its own waterfall. There isn't a fund-level record for a clawback to use. That's why, in the deal-by-deal example, the same five deals paid you £200,000, and you kept all of it.
What a Lead Earns on a Real Syndicate Deal
When an actor takes a smaller fee for a share of a film's profits, they are betting on the film's success instead of a guaranteed paycheck. Leading a syndicate works similarly, but your fee is usually zero, and your personal investment is small. Most of what you earn comes from two sources: carry and the shares you buy yourself.
Our guide on starting an angel syndicate uses a model that makes this leverage clear. For example, you invest £5,000 of your own money, raise £100,000 from your syndicate, and charge a 20% carry on the syndicate's money, but not on your own. If the company returns 11x, here's what happens.
| Your own money | Syndicate's money | |
|---|---|---|
| Invested | £5,000 | £100,000 |
| Returned at 11x | £55,000 | £1,100,000 |
| Profit | £50,000 | £1,000,000 |
| What you receive | £50,000 (all yours) | £200,000 (20% carry) |
In this case, you would earn £250,000 from putting £5,000 at risk. Most deals don't return 11x, though, so here's how the same deal looks with different outcomes.
| Exit multiple | Gain on your £5,000 | Your carry on £100,000 | Total to you |
|---|---|---|---|
| 0x | −£5,000 | £0 | −£5,000 |
| 1x | £0 | £0 | £0 |
| 3x | £10,000 | £40,000 | £50,000 |
| 11x | £50,000 | £200,000 | £250,000 |
Think of the table as a simple carried interest calculator. Your gain is your own investment multiplied by the exit multiple minus one. Your carry comes from the amount you raised, multiplied by the same figure, then by your percentage.
If the exit is 1x or less, your carry is zero. For example, in a 3x deal, an angel who invested £10,000 would get £26,000 instead of £30,000. The £4,000 difference is what they pay for your deal flow and effort.
How Carried Interest Is Taxed in the UK From 6 April 2026
The way carry is calculated has not changed this year, but the way it is taxed has. For UK residents, carried interest was previously taxed as a capital gain. Starting 6 April 2026, it will be taxed as income. This is the key change that anyone dealing with carried interest in the UK should be aware of.
The change took place in two stages. According to GOV.UK's policy paper, the first step raised the Capital Gains Tax rates on carried interest from 18% and 28% to 32% starting 6 April 2025.
One year later, the new rules came into effect. BDO's summary explains that all carried interest is now treated as trading profits, taxed at a marginal rate of 45% plus 2% Class 4 NICs, with a 72.5% multiplier for qualifying carry.
| Period | How carry is taxed | Top rate |
|---|---|---|
| Before 6 April 2025 | Capital Gains Tax | 28% |
| 6 April 2025 to 5 April 2026 | Capital Gains Tax | 32% |
| From 6 April 2026, qualifying carry | Income tax and Class 4 NICs on 72.5% of the carry | 34.075% (34.8% in Scotland) |
| From 6 April 2026, non-qualifying carry | Income tax and Class 4 NICs on the full amount | Up to 47% |
For someone paying the additional rate, the highest tax rate on qualifying carried interest is 72.5% of 47%, which equals 34.075%. Whether your carry qualifies depends on how long the underlying investment was held. The next section will explain this in more detail.
The investment structure is also important. Odin's documents say that carry from a bare trust is treated as income, while carry from a Delaware Series LP is treated as capital gains. Since 6 April 2026, carried interest in the UK falls under income tax. UK residents should check with their tax adviser to see how these rules apply to their situation.
Figures were checked against GOV.UK and BDO as of 22 September 2026. Please note, this is only a summary of the rules and not tax advice.
The 40-Month Problem for Deal-by-Deal SPVs
A Rioja wine needs to age for three years before it can be called Reserva, no matter how good it tastes after two. The new carried interest rules are similar. You only get the 72.5% multiplier if the investments have been held long enough.
According to Saffery's summary, that means an average holding period of at least 40 months, with some relief starting at 36 months.
These rules were designed for funds. A fund buys and sells several companies over about ten years, so selling one company early does not affect its average much. But a syndicate SPV usually holds just one company, so the average holding period is simply how long that single deal lasts.
Let's look at an example: imagine £200,000 of carry for an additional rate taxpayer, with the same deal exiting at different times.
| Time from investment to exit | Status | Tax on £200,000 of carry |
|---|---|---|
| 48 months | Qualifying | £68,150 (34.075%) |
| 36 to 40 months | Partly qualifying | Between the two |
| 24 months, such as a secondary sale | Not qualifying | £94,000 (47%) |
If you exit early, you pay £25,850 more in tax on the same carry. This creates a tricky incentive. Your investors might like a secondary offer at month 30, but waiting until month 41 would mean you pay much less tax on the same deal.
There is another thing to consider first. Your carry must actually fall under the carried interest rules. How these rules apply to a lead's carry from a single SPV is something you should check with your tax adviser, and it's best to do this before the deal closes, not at exit.
Final Words
Questions about carry come down to the deal sheet you agree on before anyone invests. Make sure you set the rate, hurdle, and fees clearly in that document. Speak to your adviser about tax while the deal is still open, and Odin will handle the calculations when the exit happens.
FAQs
What is meant by carried interest?
It's the share of a deal's profit that goes to the lead or fund manager for finding the company and doing the work. Investors get their money back first, and carried interest comes from the remaining profit.
What does 20% carried interest mean?
The lead is paid a fifth of the profit, and investors keep the rest. People sometimes read it as 20% of the whole exit, which it isn't. The money originally invested is never part of the sum.
What will happen to carried interest in April 2026?
It already has. Since 6 April 2026, UK carried interest tax rules treat carry as income rather than a capital gain. If your carry qualifies, only 72.5% of it is taxed, which comes to 34.075% for an additional rate taxpayer.
What does 20% carry mean?
Say a £100,000 raise returns £1,100,000. That's £1,000,000 of profit, so the lead's 20% comes to £200,000. Investors share the remaining £900,000, which includes their original £100,000.
Is carried interest a loophole?
Critics have called it a loophole for years, since carried interest used to let pay for work be taxed as a capital gain. Others think it's fair pay for taking long-term risks. In the UK, the rules changed on 6 April 2026, and now carry is taxed as income.
