The UK Qualifying Asset Holding Company Regime - Highlights


March.30.2022

Background

The United Kingdom ("UK") Qualifying Asset Holding Company ("QAHC") regime (at Schedule 2 to Finance Act 2022) comes into force on 1 April 2022. The HM Revenue & Customs ("HMRC") policy paper dated 27 October 2021 states: "The measure forms part of a wider review of the UK funds regime to consider reforms which hold the potential to have positive outcomes for the financial sector and enhance the UK's competitiveness as a location for asset management and for investment funds."

Broadly, the objective of the QAHC regime is for the UK to have an asset holding company regime that successfully competes, at least from a tax perspective, with rival jurisdictions (e.g. Luxembourg and Ireland). This development is expected to bring business and jobs to the asset management and professional services sectors in the UK, and could make UK holding entities a more commonplace sight in certain fund structures.

What are the key benefits of the QAHC regime?

Key benefits of the QAHC regime include the following:

  • QAHCs are exempt from corporation tax on disposal of shares (provided the shares do not derive more than 75% of their market value from UK land).
  • QAHCs are exempt from corporation tax on profits from an overseas property business (provided such profits are subject to tax abroad).
  • Payments of interest by QAHCs are exempt from UK withholding tax.
  • QAHCs are allowed deductions for certain interest payments that would otherwise be disallowed as distributions.
  • Share buy-backs by QAHCs from individuals should be treated for tax purposes as capital rather than income in individuals' hands, and therefore be subject to capital gains tax rates rather than income tax rates.
  • QAHCs are exempt from stamp duty and stamp duty reserve tax on the repurchase of their own shares and loan capital.
  • The remittance basis should apply to any income and gains arising from non-UK situs assets, when held through a QAHC, for non-UK domiciled investment managers who use the remittance basis.

What are the eligibility conditions of the QAHC regime?

Broadly, the criteria in order for a company to be eligible for the QAHC regime are as follows:

  • the company must be a tax resident in the UK;
  • the company must not be a UK Real Estate Investment Trust ("REIT");
  • no equity securities of the company may be listed or traded on a recognised stock exchange or any other public market or exchange;
  • the company must notify HMRC if it wishes to enter the QAHC regime;
  • the investment strategy of the company must not involve: (i) the acquisition of equity securities that are listed or traded on a recognised stock exchange or any other public market or exchange, except for the purpose of facilitating a change of control, or (ii) other interests that derive their value from such securities; 
  • the main activity of the company is the carrying on of an investment business, and any other activities of the asset holding company (if any) must be ancillary and not carried on to any substantial extent; and 
  • the sum of the "relevant interests" in the company held by persons who are not "Category A investors" must not exceed 30%:
    • "Relevant interests" for the purpose of the ownership condition means the greater of (i) the proportion of profits to which the person is beneficially entitled; (ii) the proportion of the assets to which the person is entitled on a winding up of the company; and (iii) the person's proportion of the voting power in the asset holding company; and
    • "Category A investors" for the purposes of the ownership condition include QAHCs, certain public authorities, certain diversely held funds, long term insurance businesses, UK REITs, non-UK REIT equivalents, and certain pension schemes.

Concluding remarks

The introduction of the QAHC regime is an exciting development for enhancing UK competitiveness in the asset management and investment funds sectors. These developments, in conjunction with the fact that the UK is already regarded as a jurisdiction that has a comparatively attractive holding company regime (owing in particular to the relatively low headline corporate tax rate, the fact that the UK does not impose withholding tax on dividends paid by a UK holding company, and the UK's extensive double tax treaty network),  provides the UK with a potential edge when it comes to attracting funds to the UK.

For further information, including how the QAHC regime may be relevant to your transactions, and how a company may join the QAHC regime, please contact: