The UK's new "Qualifying Asset Holding Company" ("QAHC") regime, which came into effect on 1 April 2022, is one of the first proposals to result from the UK government's review of the UK funds regime, which was announced in the 2020 Budget.
Fund managers who use Guernsey entities to hold fund assets will be able to take advantage of the QAHC regime as a Guernsey incorporated company which elects to be UK tax resident is suitable as a QAHC. With no stamp duty payable on the transfer or sale of shares in Guernsey companies, together with Guernsey's more flexible corporate regime (permitting easier dividend or other distributions such as share buy backs), the new QAHC regime presents significant opportunities for Guernsey companies.
WHAT IS THE INTENTION OF THE NEW REGIME?
By replicating and improving upon successful asset holding structures adopted by fund managers in jurisdictions like Luxembourg, the QAHC regime is intended to bolster the UK funds industry by facilitating greater UK-based fund activities, amending certain aspects of the UK tax system which have hitherto made UK vehicles unattractive as asset holding companies ("AHCs").
This is expected to be particularly attractive to investment businesses which have existing substance and/or investments in the UK, by providing an efficient way to hold UK and non-UK investments from both an administrative and tax perspective.
WHICH ENTITIES CAN ELECT TO BE CLASSIFIED AS A QAHC?
To be eligible for the QAHC regime:
- the company must be tax resident in the UK;
- the company must not be a UK REIT;
- the company's equity may not be listed or traded on a stock exchange;
- the company's investment strategy must not involve: (i) the acquisition of listed or publicly traded equity except for the purpose of facilitating a change of control, or (ii) derivatives of such securities;
- the company's main activity must be that of an investment business;
- at least 30% of relevant interests in the company must be held by "Category A investors" (broadly speaking, sophisticated and institutional investors); and
- the company must notify HMRC if it wishes to enter the QAHC regime.
WHAT ARE THE UK TAX BENEFITS?
The principal benefits of the QAHC regime are:
- exemption from UK corporation tax on capital gains on disposals of shares of non-"UK property rich" companies and overseas land;
- exemption from UK corporation tax on profits from an overseas property business where those profits are subject to tax in an overseas jurisdiction;
- exemption from UK withholding tax on interest payments by the QAHC;
- deductibility of certain interest payments (e.g. interest paid on profit participating loans or convertible securities, and on late paid interest);
- capital (rather than income) treatment on a redemption, repayment or purchase of its shares by the QAHC (this does not apply to shares held by portfolio company executives, but does apply to fund executives); and
- an exemption from stamp duty and Stamp Duty Reserve Tax on the repurchase by a QAHC of its own shares and loan capital.
WHAT DOES A UK REGIME HAVE TO DO WITH GUERNSEY?
The AHC must be tax resident, but not necessarily incorporated, in the UK. A company incorporated and registered in Guernsey may elect to become tax resident in the UK before electing into the QAHC regime.
This is facilitated by the changes to Guernsey's corporate tax residence rules in 2019, which clarified the position in relation to tax for a Guernsey company migrating its tax residence out of Guernsey.
Using a Guernsey company has the following benefits compare to using a UK company:
- greater ease and speed of establishment;
- no stamp duty on a transfer of its shares; and
- a more flexible corporate regime (including in particular a far simpler process to effect distributions such as share redemptions and buy-backs).
Guernsey also benefits from its political and economic stability, its trusted legal system, its tax neutrality; its pragmatic and proportionate regulation and its world class legal, accounting and administration service providers.
Originally Published by Business Brief, August 2022.
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