Policy paper

Amendments to the Qualifying Asset Holding Companies (QAHC) rules

Published 15 March 2023

Who is likely to be affected

Companies using the Qualifying Asset Holding Companies (QAHC) regime and certain investment vehicles which cannot currently satisfy the conditions to become a qualifying fund for the purpose of the QAHC regime, and the entities that invest in those structures.

General description of the measure

This measure makes amendments to the QAHC rules so that the conditions that must be met by a company to qualify as a QAHC better align with the intended scope of the QAHC regime.

Policy objective

The QAHC regime was introduced 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 taxes investors similarly 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.

A company can only be a QAHC if it satisfies certain conditions, and it chooses to become a QAHC.

Background to the measure

The QAHC regime was included in Finance Act 2022 and came into effect from 1 April 2022.

In July 2022 amendments to the QAHC regime were announced and draft legislation published. The draft legislation accommodated ownership of QAHCs by parallel funds and collective investment schemes with body corporate characteristics, while also extending the anti-fragmentation rule. Following consultation with stakeholders, the draft legislation was amended and expanded to address other issues. The provisions dealing with parallel funds have been moved to a separate measure (Amendments to the Genuine Diversity of Ownership (GDO) Condition) given the read across to other areas of taxation.

Detailed proposal

Operative date

All changes will have effect on and after the date of Royal Assent of Spring Finance Bill 2023 except:

• The amendment to the definition of a collective investment scheme, and changes to paragraph 53 and the rules determining whether a fund is close, have effect from 1 April 2022 (the commencement of the regime);
• The extension of the anti-fragmentation rule has effect from 20 July 2022 (when draft provisions were published); and
• The clarification that a securitisation company cannot also be a QAHC has effect from 15 March 2023 (Budget Day).

Current law

The QAHC rules are at Schedule 2 to Finance Act 2022.

Proposed revisions

Legislation will be introduced in Spring Finance Bill 2023 to amend Schedule 2 to Finance Act 2022 as follows:

• Paragraph 2 will be amended to make it clear that a securitisation company cannot also be a QAHC. Paragraph 58 will be amended to include a definition for ‘securitisation company’.
• Paragraph 4 will be amended to extend the 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 exceed 30%.
• Paragraph 5 will be amended so that cross-references to CTA 2010 work as intended when determining relevant interests.
• Paragraph 9 will be amended to, firstly, include certain entities which would be collective investment schemes if they were not bodies corporate, and secondly, modify the rules determining whether or not a fund is close so that they work in the context of such entities.
• Paragraph 13 will be amended to allow an election which treats listed securities as unlisted. This will allow a QAHC to hold listed securities and still meet the investment strategy condition, but the QAHC will be taxable on the dividend income receivable from such securities. Various protections will be included to prevent companies entering into arrangements to avoid the dividend income being taxable.
• Paragraph 53 will be amended so that the chargeable gains exemption works as intended where a QAHC invests in a derivative contract with an underlying subject matter of shares.
• New paragraph 59 will ensure qualifying alternative finance arrangements constitute a relevant interest unless they are analogous with a normal commercial loan.

Summary of impacts

Exchequer impact (£m)

2022 to 2023	2023 to 2024	2024 to 2025	2025 to 2026	2026 to 2027	2027 to 2028
—	Nil	Nil	Nil	Nil	Nil

The 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 expected that there will be adverse effects on any group 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 businesses interact with HMRC.

This measure is not expected to impact on civil society organisations.

Operational impact (£m) (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 and other 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, please contact the Financial Services Policy Team. Email: financialservicesbai@hmrc.gov.uk.