Yes, for example. B, sponsors expect an annual return of 10% and that the fund returns only 7% over a given period, a portion of the promotion paid to Kompleimer could be returned to cover the defect. The clawback reserve, when added to the other risks incurred by compatibility, justifies that the interest paid is not a salary – but a risky return that can only be paid on the basis of efficiency. The 2003 Finance Act expanded the circumstances in which investment gains were considered employment-related and were therefore taxed as income. In 2003, domestic income and BVCA entered into a new agreement which, despite the new legislation, maintained the taxation of most interest-related profits as capital gains and not as income.  These capital gains were generally taxed at 10%, compared to a 40% rate on income. The distribution of fund returns is often done through a distribution waterfall.   The returns generated by the investment are first spent to return the initial capital of each investor, including the manager.   These are not interest-borne, as they are a repayment of capital (i.e. no interest).
Second, returns are paid to investors other than managers up to a certain pre-agreed return (the „obstacle rate” or the „preferred return”).  The usual obstacle rate is 7 to 9% per year.   Third, executives are paid returns until they have also received a return comment of the obstacle rate (the „catch-up hunt”).  Not all funds provide for an obstacle and a catch-up hunt. Often, during the catch-up period, returns are distributed with the manager who gets the largest (p.B 80%) .B. until the manager`s catch-up percentage is collected. Fourth, once the executive`s returns match the returns of the investors, the distribution is reversed, the executive being weaker (often 20%) and investors take the highest (often 80%) Let`s free him.  All performance by managers above the manager`s initial contribution is carried interest.  Technically, investor returns are also supplied with interest, but this term is generally used only for executive returns. The Finance Act of 1972 provided that profits from investments acquired on the basis of rights or opportunities offered to individuals as directors or employees were taxed as income and not as capital gains, subject to various exceptions.
This may be strictly true for the transferred interests of many venture capitalists, even if they were partners and not employees of the investment fund, as they were often directors of investment firms. In 1987, the Inland Revenue and the British Venture Capital Association (BVCA)) entered into an agreement that, in most cases, profits from paid interest were not taxed as proceeds.