The future of investing – the role of Qualifying Asset Holding Companies
The rise of the Qualifying Asset Holding Company (QAHC) has been a topic of much interest amongst the UK investment management community lately. Simon Drewett, Managing Director at Altum Group shares his view on this trend and reflects on the growing importance of QAHCs and their ability to provide managers with innovative and effective fund solutions.
The QAHC regime was formally introduced by the UK Government in 2022 as part of its wide-ranging review of the UK funds landscape, with the intention of enabling the UK to compete more effectively with rival European asset holding jurisdictions such as Luxembourg and Ireland.
Alongside unlisted Real Estate Investment Trusts (REITs) and Reserved Investor Funds (RIFs), QAHCs represent just one of an expanding arsenal of tax-efficient holding structure options available to asset managers and investment funds, designed to position the UK as a more attractive domiciliation alternative post-Brexit.
Based on HMRC data, more than 300 companies are thought to have elected into the QAHC regime since its introduction, with a sizeable proportion being by managers operating in the private credit sector.
Navigating the way ahead
A QAHC is a new form of tax efficient vehicle designed primarily to create a simple, low-friction tax regime for eligible companies operating across a range of private market investment strategies. Its key premise is to allow investment funds to house their underlying investment holding structures in the UK within an advantageous dedicated tax regime.
Fundamentally a QAHC is a normal unlisted UK tax resident company that is at least 70% owned by “good” (known as Category A) investors, such as investment funds and various types of institutional investors (typically pension funds and insurance companies). A QAHC’s main activity must be as an investment business and there are strict eligibility criteria concerning the company’s investment strategy. In practice, the regime is most suitable for investing in unlisted shares, debt and overseas land and property (although there are certain exemptions to this).
Levelling the playing field
Until the introduction of QAHCs, tax roadblocks had rendered the UK a relatively unattractive jurisdiction for asset holding companies, however, with the launch of this regime, the UK Government aims essentially to tax a QAHC’s ultimate investors as if they had invested directly in the underlying assets.
QAHCs have been engineered to adopt some of the most investor-friendly features of the holding company regimes available in Luxembourg and Ireland, and additionally offer:
- Simplicity: the principal advantage of a QAHC is that it can be operated wholly from within the UK, where a substantial proportion of the European fund management community is based. This should make holding structures less expensive to run and more straightforward to maintain in terms of the EU’s new operational substance requirements (ATAD 3).
- Generous tax benefits: with a wide-range of tax advantages that include broad exemption on gains from shares and non-UK land, a deductions regime that should keep taxable income very low and a complete exemption for foreign property business income. In addition, there are tax benefits for QAHC investors, facilitating returns in the form of capital.
- Late paid interest switched off: As QAHCs will most likely look to match interest income accruing on investments with a corresponding interest expense on shareholder debt, the late paid interest rules can be problematic for holding companies when the interest is not actually paid within a certain period. This rule is disapplied on QAHCs so that interest payments are accounted for on an accruals basis rather than the paid basis.
Key benefits of the new regime include
- Tax neutrality for eligible companies
- No withholding tax on distributions and interest
- Access to double taxation treaties
- Inexpensive and straightforward to set up
- Wide capital gains and dividends exemptions
- Avoids ATAD 3 substance requirements
- Capital gains repatriation to UK investors
- Aligns UK-based managers and fund operations
Jersey companies as QAHCs
A key requirement of the regime is that QAHCs must be UK tax resident, however, a Jersey company can be UK tax resident if it is managed and controlled within the UK. A Jersey company can therefore take advantage of QAHC status whilst also conferring various additional benefits:
- Flexible capital maintenance, enabling simple and efficient share redemptions, share buy-backs and dividends, with no requirement for distributions to be made from ‘distributable reserves’,
- Zero Jersey stamp duty on sale of Jersey shares, and
- No requirement for auditing or filing of annual accounts.
Let’s talk
Altum Group exploit market leading technology to efficiently onboard complex fund structures and assess the diversity of ownership requirements associated with QAHCs. We are also able to provide all necessary incorporation, domiciliation, directorship and company secretarial services under the regime for QAHCs incorporated both in the UK or Jersey. Once established our team of experienced asset class specialists is perfectly placed to perform all of the QAHCs’ required governance, administration, tax filings, accounting and reporting functions.
We are very specific about which asset classes we support. We only administer alternative investments because we know we can add real value to these clients. For more information on how we can help you, please contact Simon and James directly.
