(1) In this section—

"carried interest", in relation to a relevant investment, means the share of profits (where the share ratio was agreed at the outset of the relevant investment) referred to in paragraph (b) of the definition of "total profits of an investment" that is received by a company or partnership in respect of the management of the relevant investment;

"carried interest to which this section applies", in relation to a relevant investment, means an amount of carried interest which is not greater than 20 per cent of the total profits from the relevant investment;

"innovation activities" means development of new technological, telecommunication, scientific or business processes;

"investor", in relation to a relevant investment, means a person other than a person entitled to carried interest or a person connected with that person;

"relevant investment" means an investment, which remains in place for at least 6 years, in unquoted shares or securities of a private trading company and that company is—

(a) carrying on a business set up and commenced on or after 1 January 2009, other than a business—

(i) which was previously carried on by another person and to which the company has succeeded,

(ii) the activities of which were previously carried on as part of another person’s business, or

(iii) which is an excepted trade within the meaning of section 21A,

and

(b) carrying on a business of research, development or innovation activities;

"research and development activities" has the same meaning as in section 766(1);

"total profits of an investment", in relation to a relevant investment, means the sum of—

(a) the profits which are attributable to investors in the relevant investment by reference to an agreed initial rate of return, and

(b) the balance of the profits of the relevant investment over and above those calculated by reference to the agreed initial rate of return.

(2)(a) Notwithstanding any other provision of the Tax Acts or the Capital Gains Tax Acts, carried interest to which this section applies and which is received by a partnership shall be deemed to be an amount of chargeable gains to which section 28(1) applies.

(b) Notwithstanding any other provision of the Tax Acts or the Capital Gains Tax Acts, carried interest to which this section applies and which is received by a company shall be deemed to be an amount of chargeable gains to which section 28(1) applies.

(3)(a) Notwithstanding any other provision of the Tax Acts or the Capital Gains Tax Acts, the rate of capital gains tax in respect of chargeable gains to which subsection (2)(a) apply shall be 15 per cent.

(b) Notwithstanding any other provision of the Tax Acts or the Capital Gains Tax Acts, the rate of corporation tax in respect of chargeable gains to which subsection (2)(b) apply shall be 12.5 per cent.