MHA | UK Qualifying Asset Holding Companies regime key features

UK Qualifying Asset Holding Companies regime key features

Alison Conley · Posted on: June 19th 2023 · read

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It’s becoming easier to be a Qualifying Asset Holding Company

Qualifying Asset Holding Companies (QAHCs) were introduced in April 2022 and just over a year on, they are worth a revisit.

The aim of the QAHC regime is to make the UK a competitive location for asset management and investment funds, which frequently tend to locate in jurisdictions such as Luxembourg and Ireland. From a tax perspective, QAHCs enable the flow of income and gains between investors and the underlying investments so that, for UK tax purposes, investors are broadly taxed as if they had directly invested in the underlying assets. To enable this, the QAHC is exempt from corporation tax on income and gains from qualifying assets, only paying tax on a small margin to reflect the activities that it performs. In addition to this, QAHCs benefit from an exemption from the requirement to withhold UK tax from payments of interest, the potential to deduct interest on profit related debt instruments and the ability to repatriate capital via a share buy-back.

How does a company qualify?

In order to qualify as a QAHC, the company must meet certain conditions, including being UK resident, carrying on a mainly investment business (any other activities being ancillary) and following a qualifying investment strategy. Qualifying and non-qualifying activities are ringfenced within the QAHC, as if the QAHC comprised two different entities.

The regime is ever evolving

A number of amendments were announced in July 2022, most but not all of which, will have effect from Royal Assent of the Finance Bill 2023 (expected July 2023). The amendments:

  • enable some investment in listed securities - previously disallowed;
  • modify the genuine diversity of ownership (GDO) condition to allow easier access to the regime where parallel and aggregator funds are used;
  • expand the definition of a collective investment scheme so that corporate funds can use the GDO condition;
  • allow alternative finance arrangements to be treated as equity interests when considering whether the ownership condition has been met;
  • strengthen the anti-fragmentation rules to ensure that the ownership condition is met; and clarify that the QAHC cannot be a securitisation company.

All the conditions require careful consideration but perhaps the most complex and consequently, subject to the most revision, is the ownership condition. This provides that at least 70% of the relevant interests (voting rights, entitlement to profits available for distribution and assets available on winding up) are held by ‘category A’ investors. Category A investors include QAHCs, qualifying funds, relevant qualifying investors, intermediate companies and certain public authorities. In many instances, it is the definition of qualifying fund that is key being, in broad terms:

  • A collective investment scheme that meets the GDO condition (which mainly focuses on the way in which the fund is marketed);
  • A collective investment scheme or an alternative investment fund which is not “close” (under Corporation Tax Act 2020).
  • A collective investment scheme or an alternative investment fund that is controlled by at least 70% of category A investors.

The modification to the GDO referenced above and effective from Royal Assent, essentially allows the test to be considered in the context of the entities making up the whole fund rather than on an entity-by-entity basis. As such, this is particularly helpful in relation to parallel and aggregator funds.

The expansion of the definition of a collective investment scheme, and the rules determining whether a fund is close, are backdated to 1 April 2022. Under the revised definition, a collective investment scheme will include certain entities which would be collective investment schemes if they were not bodies corporate and further modifies the rules determining whether or not a fund is close so that they work in the context of such entities.

Get in touch 

A QAHC can be very advantageous but is not suitable for everyone, and the costs and benefits of establishing one or relocating a company from overseas under the regime need to be carefully considered.

Get in touch with our Corporate Tax team to discuss your options.

A QAHC can be very advantageous but is not suitable for everyone...

Alison Conley  Corporate and International Tax Partner

Corporate Tax Insights

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