Amendments to the Qualifying Asset Holding Companies (QAHC) regime
Published 20 July 2022
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Who is likely to be affected
Certain investment vehicles which cannot currently satisfy the conditions to become a ‘qualifying fund’ for the purpose of the Qualifying Asset Holding Companies (QAHC) regime, and the asset holding companies through which they invest.
General description of the measure
The Qualifying Asset Holding Companies regime was introduced by Finance Act 2022 to recognise circumstances where an intermediate asset holding company (AHC) is used to facilitate the flow of capital, income and gains between investors and underlying assets. The regime broadly taxes investors as if they had invested directly in the underlying assets, with the objective that the QAHC pays no more tax than is proportionate to the activities it performs.
Three changes are being made so that the conditions that must be met for a company to be a Qualifying Asset Holding Company better align with the intended scope of the regime:
- Treating an investment fund as meeting the diversity of ownership condition where it is closely associated with another investment fund that meets that condition by virtue of being widely marketed and made available.
- Facilitating the entry into the regime of certain types of fund entity that would be a collective investment scheme if they did not have characteristics of a body corporate.
- Extending the existing anti-fragmentation rule to exclude from the regime structures involving more than one QAHC in which the combined percentage of relevant interests that are not held by eligible (‘category A’) investors exceeds 30%.
Policy objective
A company can only be a QAHC if it meets certain conditions, one of which is that it is owned by eligible entities. Investment funds can be eligible entities where they fulfil the definition of a ‘qualifying fund’, which requires the fund to meet a diversity of ownership condition. One way funds that are collective investment schemes can satisfy this condition is for interests in the fund to be widely marketed and made widely available. The diversity of ownership condition is intended to prevent the establishment of arrangements that are not within the scope of the QAHC regime’s objectives.
Investment managers may offer entry points to an investment scheme using a variety of investment vehicles which suit investor needs or satisfy legal, tax or regulatory considerations. Despite the use of different vehicles, all investors will understand that they are investing in the same investment scheme. These different investment vehicles are referred to as ‘parallel funds’. In a parallel fund structure, the interests in one fund are widely marketed and made available, but certain investors will then invest via a different fund. A similar issue can arise in ‘feeder’ structures where a fund is marketed but then makes an investment via an aggregator fund below it which is not itself marketed.
Currently, as some of the parallel funds and any aggregator funds are not themselves widely marketed and made available, they cannot use this route to meet the diversity of ownership condition, even though the structure as a whole has been marketed and made available as required. The changes being made by this measure will allow the parallel and aggregator funds to meet the diversity of ownership condition as long as at least one fund has been widely marketed and made available and other requirements are met.
The changes will also permit fund entities that would be a collective investment scheme if they did not have characteristics of a body corporate to meet the diversity of ownership condition by virtue of being widely marketed and made available by treating them for this purpose as though they were collective investment schemes.
Overall, the changes will enable a greater number of diversely held fund structures that are the intended users of the QAHC regime to use it.
Background to the measure
At Budget 2020, the government announced that it would carry out a review of the UK funds regime, covering tax and relevant areas of regulation. The review started with a consultation on the tax treatment of asset holding companies in alternative fund structures, also published at Budget 2020.
The government responded to that consultation in December 2020, launching a second-stage consultation on detailed design features of a new regime for asset holding companies. The government’s response to that consultation was published in July 2021, alongside draft legislation. Final legislation was included in Finance Act 2022 and came into effect from 1 April 2022.
Detailed proposal
Operative date
The ‘parallel funds’ changes will apply from a date to be specified.
The amendment of the definition of a collective investment scheme applies from 1 April 2022.
The extension of the anti-fragmentation rule applies from 20 July 2022.
Current law
Current law is included in Schedule 2 to Finance Act 2022.
Proposed revisions
Schedule 2 to Finance Act 2022 is amended as follows:
- after paragraph 9, a new paragraph 9A (diversity of ownership condition: parallel and aggregator funds) will be inserted
- in paragraph 58 (interpretation), the definition of ‘collective investment scheme’ will be substituted with a new definition
- in paragraph 4, a new sub-paragraph (2A) will be inserted after existing sub-paragraph (2) to extend the anti-fragmentation rule
Summary of impacts
Exchequer impact (£million)
| 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 |
|---|---|---|---|---|---|
| nil | nil | nil | nil | nil | nil |
This measure is not expected to have an Exchequer impact.
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
There is not expected to be an impact on individuals as this measure only affects businesses.
This measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
It is not anticipated that there will be impacts for those in groups sharing protected characteristics.
Impact on business including civil society organisations
This measure is expected to have a negligible effect on certain investment entities that can now access this regime. One-off costs could include familiarisation with this change. There are not expected to be any continuing costs. Customer experience is expected to remain broadly the same as it does not alter how individuals interact with HMRC.
This measure is not expected to impact on civil society organisations.
Operational impact (£million) (HMRC or other)
This change should not result in any operational impacts.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be monitored through information collected from tax returns submitted and information required to be returned to HMRC, and will be kept under review through communication with affected taxpayer groups.
Further advice
If you have any questions about this change, contact the Financial Services Policy Team. Email: financialservicesbai@hmrc.gov.uk.