Back in March 2020, Chancellor Rishi Sunak launched a consultation on the tax treatment of asset holding companies in fund structures as part of a wider review of the UK funds regime. Following a second consultation late last year, initial draft legislation has now been published for a new Qualifying Asset Holding Companies (QAHC) taxation regime. Further legislation is expected in due course.
The aim of the new taxation regime, which comes into effect in April 2022, is to enhance the UK's competitiveness as a location for asset management and investment funds. An intermediate investment vehicle will be created that works in a variety of different investment funds, including private equity funds, while providing sufficient simplicity and certainty to compete with other established regimes.
To qualify for the tax-advantaged regime, a QAHC must be UK-resident and:
- be at least 70% owned by diversely owned funds managed by regulated managers or certain institutional investors
- exist to facilitate the flow of capital, income and gains between investors and underlying investments, and
- not be a UK REIT or have shares listed or traded on a recognised stock exchange.
Investors will broadly be taxed as though they had invested in the underlying assets while QAHCs will pay tax proportionate to the activities they perform.
Tax advantages of the new regime include:
- capital gains exemption on disposals of certain shares and overseas property by QAHCs
- deductibility of certain interest payments that would otherwise be disallowed as distributions
- withholding tax exemption on payments of interest made to investors in the QAHC
- where a QAHC repurchases its share capital from an individual, treating premiums paid as capital rather than income distributions (where these derive from capital rather than income from underlying investments)
- stamp duty and Stamp Duty Reserve Tax exemption for repurchases by a QAHC of share and loan capital which it previously issued.
The draft legislation is subject to technical consultation (closing on 14 September 2021) following which it will be included in the Finance Bill 2021-22 (and enacted as the Finance Act 2022).