What is a qualifying asset holding company?
Tax consequences
Other characteristics of regime
Joining and leaving QAHC regime


A new beneficial elective tax regime for UK companies that hold investment assets as part of fund structures was introduced in the United Kingdom from 1 April 2022. The regime is targeted at companies used to hold investment assets in collective and institutional investment fund structures. These funds are typically closed-end, non-retail funds, holding credit, private equity and non-UK real estate investments that are more illiquid and tend to be higher risk assets.

The government hopes that the new regime will generate jobs across the UK asset management sector by encouraging UK investment funds to use UK corporate holding structures in a tax efficient manner, rather than establishing structures overseas. UK-based fund managers typically seek to hold investments through Luxembourg or Irish structures, to gain access to tax efficient regimes. Using a UK-based asset holding company should also reduce costs and simplify compliance for UK investment funds.

Broadly, the new regime aims to ensure that where funds hold assets through underlying UK tax resident companies, UK investors are taxed as if they invested in the underlying assets directly and that the UK asset holding companies pay no more tax than is proportionate to the activities they perform.

The introduction of the new regime follows a review of the United Kingdom's funds regime, announced in the March 2020 budget. Rather than making changes to the existing tax regime, the government decided to introduce a new regime specifically for asset holding companies.

The rules do not apply to investments in UK land. However, changes have been made to the real estate investment trust (REIT) regime to make it slightly more attractive.

What is a qualifying asset holding company?

For the new asset holding company regime to apply, the company will have to satisfy the various conditions to be a qualifying asset holding company (QAHC).

A company is a QAHC if:

  • it is resident in the United Kingdom;
  • it is not a UK REIT;
  • no equity securities of the company are listed or traded on a recognised stock exchange, or any other public market or exchange;
  • the main activity of the company is the carrying on of an investment business. Any other activities of the company must be both ancillary to the carrying on of that investment business and not undertaken to a substantial extent;
  • the sum of relevant interests held by investors who are not "category A investors" does not exceed 30%. Category A investors include:
    • QAHCs;
    • collective investment schemes (CIS) or alternative investment funds (AIFs) that are "non-close" or 70% controlled by category A investors or a CIS that meets the "genuine diversity of ownership" (GDO) condition;
    • long-term insurance businesses;
    • sovereign wealth funds;
    • UK or overseas REITs;
    • UK-property rich collective investment vehicles;
    • pension schemes; and
    • charities.

A person has a "relevant interest" if, due to a direct or, in certain circumstances, indirect interest, they are beneficially entitled to a proportion of the profits available for distribution, beneficially entitled to a proportion of the assets for distribution on a winding up or have a proportion of the voting power. Where there are classes of securities that track specific profits or assets, a similar test is applied to such classes of interest but without the voting power test, and each such class must meet the test for the AHC to be a QAHC;

  • the company's investment strategy does not involve the acquisition of listed or traded securities, or interests deriving their value from such securities, unless the acquisition is made for the purposes of facilitating a change in control of the issuer with the result that the securities cease to be listed or traded; and
  • it has notified Her Majesty's Revenue and Customs (HMRC) that it intends to be a QAHC.

Tax consequences

Broadly, QAHCs benefit from advantageous and modified corporation tax rules in relation to their QAHC investment business, which is effectively ringfenced. QAHCs will also benefit from advantageous tax rules in relation to certain payments that they make. Any activities that a QAHC makes that do not qualify as investment business within the regime, will be subject to normal corporation tax rules. Specifically, the QAHC regime is not intended to extend to the taxation of profits from any trading activity, or from any non-QAHC investment activity, such as investment in UK land or intangibles.

Under the modified corporation tax regime for QAHCs, there are a number of specific tax advantages.

Taxation of gains
A gain accruing to a QAHC on a disposal of overseas property or shares (which do not derive at least 75% of their market value from UK land) is exempt from UK corporation tax on chargeable gains. QAHCs are also exempt from tax on profits of an overseas property business to the extent that those profits are chargeable to a foreign tax on income corresponding to income tax or corporation tax.

The broad UK tax exemption for gains on equity investments means that there is no requirement that the conditions for the United Kingdom's participation exemption (the "substantial shareholding exemption") are met.

Tax deductions for interest payments
The QAHC regime also allows tax deductions for interest payments that would usually be disallowed as distributions on the basis of being paid under profit participating loans and results-dependent debt. Additionally, the late paid interest rules will not apply in certain situations so that interest payments are relieved for a QAHC when accrued rather than paid. This should help to secure that, subject to transfer pricing, the QAHC is only taxed on a small profit margin.

Payments of interest by QAHC will not be subject to withholding tax
This does away with any need to rely on the "quoted Eurobond" exemption from UK withholding tax on interest.

Repurchases of share capital may be treated as capital rather than income
A premium paid when a QAHC repurchases its share capital from an individual investor will be treated as capital rather than income where, broadly, these derive from capital gains realised by the QAHC on the underlying investments. This does not apply to shares held by a person, other than a fund manager in relation to the QAHC, where the right or opportunity to acquire the securities or interest is available by reason of employment.

Exemption from stamp duty and stamp duty reserve tax
There is an exemption from stamp duty and stamp duty reserve tax (SDRT) for repurchases by a QAHC of share and loan capital it has previously issued but no stamp duty or SDRT exemption for transfers of QAHC shares.

Entitlement to substantial shareholding exemption
When a company becomes a QAHC, a new accounting period begins for corporation tax purposes and its old accounting period ends. It is treated as disposing of and immediately reacquiring at market value any overseas land it holds, any loan relationships related to an overseas property business and any shares. Any tax charges are not deferred but group relief or the substantial shareholding exemption (SSE) may apply to any deemed share disposal on entry. Where applicable, the SSE provides an exemption from corporation tax. There are several conditions that need to be satisfied for the SSE to apply (a discussion of which is outside the scope of this article). If the SSE 12-month holding requirement is not met at the time of the disposal but the QAHC continues to hold the shares after it joins the regime, the disposal can still benefit from the exemption.

Other characteristics of regime

There is a ring-fencing of qualifying and non-qualifying activities within the QAHC as if the QAHC comprised two notional entities, one qualifying and the other non-qualifying, so that, for example, losses from qualifying activities cannot be set off against profits of non-qualifying activities and vice versa. Where there are QAHCs making up a group for group relief purposes, there would essentially be a notional "qualifying group" and a notional "non-qualifying group", with group relief only available within the same type of notional group – qualifying or non-qualifying – but not between them. Tax neutral transfer of chargeable assets would be available within each of the notional separate groups but not between these groups or between the qualifying and non-qualifying parts of the same QAHC.

For non-UK domiciled investors subject to the United Kingdom's remittance basis of taxation, specific rules are designed to ensure that the remittance basis should apply to income and gains arising from foreign assets, even when held through a QAHC. Without these rules, using a QAHC would convert offshore income and gains taxed on the remittance basis into UK income and gains taxed on the arising basis. However, these rules only apply to investment managers, not to third party investors.

To prevent the regime being used for tax avoidance, QAHCs are subject to a more stringent application of the transfer pricing rules. The exemption for small and medium-sized entities does not apply and the "participation condition" is deemed to be satisfied by all persons with relevant interests in the QAHC, irrespective of the size of their holding.

QAHCs are also deemed to be 'close companies' for the purposes of the loans to participators rules.

Joining and leaving QAHC regime

A company that wishes to be a QAHC must notify HMRC. A special rule allows QAHC status during the early days of a fund – enabling a company to be a QAHC if it meets all the conditions other than the ownership condition, if it declares that there is a reasonable expectation that the condition will be met within two years.

A QAHC must take reasonable steps to monitor whether the ownership condition continues to be met in relation to it. It must notify HMRC if it ceases to satisfy any of the conditions or wishes to leave the regime. However, a non-deliberate breach of the activity condition is not treated as a breach provided that the QAHC notifies HMRC, and it satisfies the condition as soon as reasonably practicable. Also, a non-deliberate breach of the ownership condition is not treated as a breach provided that no more than 50% of the relevant interests in the QAHC are owned by non-category "A" investors, the QAHC notifies HMRC, the QAHC has taken reasonable steps to monitor compliance with the ownership condition and the condition is satisfied within a 90-day "cure period" of the day on which the QAHC became aware of the breach.

There is also a two-year wind-down period for a company that breaches the ownership provision in some circumstances and notifies HMRC that it intends to cease its QAHC ring-fence business.


The QAHC regime was introduced to increase the United Kingdom's attractiveness as a location for asset management and investment funds. It will certainly be easier for a UK manager to operate and establish any necessary substance for a UK QAHC, compared to an overseas asset holding company, and the UK "offshore fund rules" do not need to be dealt with since they do not apply to a UK entity. Given that the United Kingdom has a high concentration of asset management specialists, it was only logical that the United Kingdom should seek to capitalise on its existing expertise and increase the number of UK based corporate asset holding structures. To date, the regime has been welcomed across the investment funds sector. With the prospect of Anti-Tax Avoidance Directive (ATAD) III looming and uncertainty as to how it might apply, a QAHC might be seen as an increasingly attractive option since ATAD III will not apply in the United Kingdom. The simplicity created by the broad gains exemption for shares (without the need to meet the substantial shareholding exemption conditions), the broad exemption from UK withholding tax on interest (coupled with there already being no UK dividend withholding tax) should make a QAHC a more competitive rival to EU asset holding companies. Only time will tell how effective the new regime is at enticing new funds to establish QAHCs or existing funds to consider relocating their holding company structures to the United Kingdom.

The regime is so new that it will take some time to bed down and there will certainly be issues that will be identified and need to be fixed. Draft legislation for inclusion in Finance Bill 2023 was published in July 2022 to "fix" specific identified issues, including gaps in the "ownership conditions". In particular, the changes would allow certain parallel funds and aggregator funds to be treated as meeting the GDO condition to enable them to be qualifying funds and category A investors. A CIS will be treated as a parallel fund that meets the GDO condition if it is parallel to a CIS that meets the GDO condition. The definition of CIS will also be amended so that it also includes bodies corporate that would be CISs within the regulatory meaning were they not bodies corporate (eg, Delaware limited partnerships can be treated as a CIS).

For further information on this topic please contact Hatice Ismail at Pinsent Masons by telephone (+44 20 7418 8250) or email ([email protected]). The Pinsent Masons website can be accessed at