IFM40120 - Overview: Policy Background

Asset holding companies (AHCs) are used in a range of collective and institutional investment structures to hold investment assets. The government introduced the qualifying asset holding companies (QAHC) regime following extensive consultation with industry.

The first consultation on the tax treatment of AHCs in alternative fund structures, was published at Budget 2020. The aim of the consultation was to understand the structures in which AHCs are used, the commercial drivers behind the location of AHCs, and the fiscal and economic benefits they bring to the jurisdiction in which they are located. It also explored potential taxation barriers to AHCs being located in the UK and the merits of taking steps to remove such barriers. A second consultation on the policy’s design was published on 15 December 2020.

The QAHC regime is designed to recognise circumstances where intermediate holding companies are used between investors and their investments with the purpose of facilitating the flow of capital, income and gains between investors and underlying investments

Any intermediate holding company which qualifies for the regime remains taxable on income it receives and, like any corporate, is able to claim relief for certain expenses. Certain tax rules are modified (see IFM40130) so that the company pays no more tax than is proportionate to the activities it performs. The modifications include extending the scope of the transfer pricing rules, so that the taxable profits of QAHCs cannot be reduced below an arm’s length amount.

Any profits passed back from the company to investors will be taxable in the hands of the investors. Again, certain tax rules are modified with the intention of taxing investors as if they had invested in the underlying assets directly.

The Stamp Duty and Stamp Duty Reserve Tax (SDRT) rules are also modified to facilitate the return of capital to investors..

The QAHC regime is not intended to affect the taxation of profits from trading activities, UK land or intangibles.