In April 2022, the UK government introduced the Qualifying Asset Holding Company (QAHC) regime with the aim of incentivising asset managers to set up their holding structures and manage tax leakage in the UK.
The QAHC is an unlisted UK tax resident company owned to at least 70% by Category A investors. It is designed to provide asset-holding formations for institutional investors and funds investing in UK companies.
Historically the UK has always had a very strong asset management industry. However, a weak point compared to domiciles like Luxembourg has been the lack of tax-efficient vehicles addressing the underlying holding structure.
While the general holding company regime in the country is perceived to be quite strong, it was never specifically designed for asset management. Subsequently, it lacked the tax efficiencies the industry relies on.
To attract investors, a good pooling vehicle is a must. However, another requirement is an attractive structure for the underlying investments. Domiciles like Luxembourg and Ireland offer both and the UK’s lack of the latter has led to the country traditionally losing out to other jurisdictions.
Levelling the playing field
The QAHC has the potential of increasingly levelling the playing field between the domiciles, by closing a gap in the UK’s regulatory framework.
“We believe this will be a strong addition to the private investment space,” comments Peter O’Hara, senior vice president for business development at Centaur. “Having held workshops and explored QAHCS with some of our clients we feel there is tangible benefit to be gained for investment managers or investors alike. We believe having a regulator conscious of encouraging and facilitating direct investment in the UK will further brace the UK as an attractive jurisdiction.”
With increased regulatory scrutiny, the days of simply being able to set up a company in a given jurisdiction to benefit from their tax regimes are long gone by.
In today’s environment you require both a commercial reason as well as substance on the ground. For UK asset managers, with people on the ground in the UK, the QAHC will ease the pooling and structuring of their investments locally without having to set up operations in Luxembourg or other domiciles.
“QAHCs are turning out to be of particular interest to fund managers and others in the investment business with existing presence in the UK who are concerned about the need to build substance in Luxembourg,” says Elena Rowlands, partner at Travers Smith.
According to Centaur, the QAHC boasts tax efficiencies on:
- Gains on disposals of certain shares and overseas property
- Profits of an overseas property business where those profits are subject to tax in an overseas jurisdiction
- Repurchase by a QAHC of share and loan capital which it previously issued from Stamp Duty and Stamp Duty Reserve Tax
Additionally, the regime allows for several allowances such as:
- Deductions for certain interest payments which would usually be disallowed as distributions
- Switching off late paid interest rules
- Switching off the deeply discounted securities rules for corporates
- Disapply the obligation to deduct a sum representing Income Tax at the basic rate on payments of interest
- Switching off the transfer pricing exemption for small and medium-sized enterprises
- Allowing for premiums paid, when a QAHC repurchases its share capital from an individual, to be treated as capital rather than income distributions
- Allowing for certain amounts to be paid to qualifying remittance basis users by a QAHC to be treated as non-UK source
- Allowed entry and exit provisions, including the rebasing of certain assets and the creation of a new accounting period when a company enters and exits the regime
Formally introduced seven months ago, the QAHC has been well received by the industry. A sentiment which is echoed by service providers and the law firms structuring the funds, as Rowlands observes: “We have seen significant interest in the QAHC, and have already established a number of these vehicles.”