What a hedge fund leaves a UK investor
The full cascade of management fee, hurdle, high-water mark and performance fee, then UK tax on income and gains, then the gross return the fund would need for you to keep what you want.
By Eldar Edmond Grady, CEO, PPLI.com · Research checked 23 September 2026
The reported figure stops before your tax
A hedge fund reports its return net of its own fees. Your tax comes after that, and for a UK resident it depends on how the return arrives: income at the savings rate, realised gains at 24%, and gains on a non-reporting offshore fund taxed as income.
Inside a policy the tax layer is deferred, but only where the fund counts as permitted property or is picked by an insurer-appointed manager you do not direct; the manager's fees are due either way. Outside a policy the whole tax layer applies, and the instrument shows it year by year.
£1,000,000, one year, 10% gross, 2 and 20
No hurdle. Fund fees treated as not deductible, so the taxable result is the 10% before fees.
Value after fees 1,000,000 + 100,000 − 20,000 − 16,000 = £1,064,000
Reporting fund, 24% on 100,000 tax 24,000 kept £1,040,000
Non-reporting fund, 45% on 100,000 tax 45,000 kept £1,019,000
Non-reporting fund, higher rate 40% tax 40,000 kept £1,024,000Set the share of gains taxed as income to 100 for a non-reporting fund. The difference between the first two lines is £21,000 on one year and one fund.
How the X-Ray works
The fee waterfall
Management fee on the opening value; performance fee on the profit after it, above the high-water mark and any hurdle (hard or soft).
Tax
Income share at the savings rate; realised gains at the gains rate, which blends the CGT rate and the savings rate by the share of gains taxed as income; unrealised growth taxed on closing the position.
Solving backwards
The required gross return is found by trying gross returns until the net result matches your target. It is the same model run in reverse.
Common questions
Why are fees not deducted before tax?
The model treats fund fees as not deductible, so you are taxed on the result before fees. Actual treatment depends on the fund and its reporting.
Instruments and related reading
Private credit real yieldThe stated yield against the yield on committed capital after taxOpen →Alternative investment intelligenceGross return against what the terms leaveOpen →Tax drag calculatorThe annual tax cost, asset class by asset classOpen →Investment flexibilityPermitted property and insurer-appointed managersOpen →The personal portfolio bond rulesWhat a UK-workable policy may holdOpen →PPLI.com is not authorised by the Financial Conduct Authority and does not give personal advice. This is general information about UK law, not an invitation or inducement to enter into any insurance or investment contract. Policies issued by insurers outside the UK are not protected by the Financial Services Compensation Scheme (unless written through a UK branch).
The authorities this page relies on
HMRC helpsheet HS265
A gain on disposal of a non-reporting offshore fund is normally an offshore income gain, charged to income tax. A gain on a reporting fund is charged to capital gains tax. gov.uk, HS265
Income tax, savings and dividend rates
Savings rates 20, 40 and 45% in 2026/27. Dividend rates 10.75, 35.75 and 39.35% from 6 April 2026. Savings rates of 22, 42 and 47% from 6 April 2027 (FA 2026 s.5), shown here only as a labelled option. gov.uk, rate changes
Capital gains tax rates
18 and 24% for disposals on or after 30 October 2024. Business Asset Disposal Relief at 18% from 6 April 2026. Annual exempt amount £3,000. gov.uk, CGT rates
Personal portfolio bonds, ITTOIA ss.516, 520 and 522
A policy is a personal portfolio bond if the holder, a connected person or someone acting for them can select the assets outside the permitted categories in s.520. At the end of each insurance year except the last, a deemed gain of 15% of premiums plus earlier deemed gains is taxed, with no top-slicing relief. legislation.gov.uk, s.522
IPTM7725 and IPTM7730
An insurer-appointed manager normally avoids personal portfolio bond status, but a mandate restricted so tightly that the policyholder's instructions in effect determine the assets is treated as selection by the policyholder. gov.uk, IPTM7730
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