What a private credit coupon becomes after everything
From the stated asset yield to the yield on capital committed, after the drawdown ramp, leverage, fees, credit losses and UK tax on interest as it accrues.
By Eldar Edmond Grady, CEO, PPLI.com · Research checked 23 September 2026, model corrected 20 October 2026
Interest is the most heavily taxed return
Private credit pays interest. For a UK resident that is savings income at 45% at the additional rate in 2026/27 and 47% from 2027/28, every year, with no deferral and no reduced rate. Capitalised interest can be taxed before the cash arrives.
In a policy that holds only permitted property, or is run by an insurer-appointed manager, the interest would not be taxed each year. Held in your own name, the commitment earns the real yield shown below.
A 10% loan book, one year, fully invested
£1,000,000 committed, no leverage.
Interest 10%, taxed at 45% 10% x 55% = 5.50%
With a 1.5% fund fee, paid by the fund (10% − 1.5%) x 55% = 4.68%
Higher rate, 2% defaults, 50% recovered 10% − 1% − 40% x 9% = 5.40%The fund's own fees and expenses come out of the interest before it reaches you, so the tax is on what is left: 8.5% here, not 10%. A fee you pay an adviser yourself is different, paid from taxed money and not deductible. Until 20 October 2026 this page added the fund's fees back before working out the tax, which overstated it. One year, fully invested, no ramp: a narrow illustration, not a client result.
Every stage in the instrument is a yield on committed capital averaged over the holding period, so the ramp is part of the answer rather than assumed away.
How the real yield is built
Deployment
Capital is drawn in a straight line to the target over the years you set; the undrawn balance earns the cash rate.
Losses and leverage
Losses are the default rate times one minus recovery, on the whole book. Fund debt multiplies the book and costs the rate you set.
Tax
Net income taxed at the savings rate in the year it arises. Capitalised interest is treated as income of the year it accrues; the real timing depends on the fund structure.
Instruments and related reading
Hedge Fund X-RayFrom gross return to what you keep after fees and UK taxOpen →Alternative investment intelligenceGross return against what the terms leaveOpen →Tax drag calculatorThe annual tax cost, asset class by asset classOpen →Offshore bond break-evenThe year a policy pays for its charges, if it doesOpen →Investment flexibilityPermitted property and insurer-appointed managersOpen →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
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): enacted law, set beside the 2026/27 result on this page as a second rate basis. gov.uk, rate changes
ITA 2007 s.18(4)
Chargeable event gains are savings income for an individual, so they sit in the savings bands and are taxed at 20, 40 or 45% in 2026/27. legislation.gov.uk, ITA s.18
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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