IFM40360 - Becoming a QAHC: example of ring fence streaming within QAHC
Example showing streaming of amounts within QAHC
Year 1
| QAHC ring fence business | Exempt £m | Taxable £m | QAHC non-ring fence business | Taxable £m |
|---|---|---|---|---|
| Loan relationship deficit | (4) | - | - | |
| Management expenses | (4) | Management expenses | (1) | |
| Exempt overseas property business profits (taxable in a foreign jurisdiction) | 10 | UK property business profits | 9 | |
| Total taxable profits | nil | Total taxable profits | 8 | |
| Loan relationship deficit c/f | (4) | - | - | |
| Surplus management expenses c/f | (4) | - | - |
The QAHC has total taxable profits of £8m arising from its non-ring fence business.
Management expenses incurred for the whole of the QAHC should be apportioned between the QAHC ring fence and non-ring fence business on a just and reasonable basis.
Instead of carrying forward the net non-trading loan relationship deficit and surplus management expenses, these could be surrendered as group relief against profits arising within the QAHC ring fence of another QAHC. Another QAHC within the same corporate group may be able to claim the group relief.
The UK property business profits remain taxable in the usual way whereas the overseas property business profits are not taxable provided those profits are taxable in a foreign jurisdiction.
Year 2:
| QAHC ring fence business | Exempt £m | Taxable £m | QAHC non-ring fence business | Taxable £m |
|---|---|---|---|---|
| Loan relationship credits | - | 5 | - | - |
| Less: loan relationship deficit b/f | - | (4) | - | - |
| Management expenses | - | (3) | Management expenses | (2) |
| Plus: management expenses b/f | - | (4) | - | - |
| Exempt overseas property business profits (taxable in a foreign jurisdiction) | 10 | - | UK business profits | 11 |
| Exempt chargeable gain on qualifying shares (that would not be eligible for substantial shareholdings exemption) | 20 | - | Chargeable gain on non-qualifying shares | 18 |
| Non-allowable capital loss | (20) | - | - | - |
| Total taxable profits | - | nil | Total taxable profits | 27 |
| Surplus management expenses c/f | - | (6) | - | - |
The QAHC has total taxable profits of £27m arising from its non-ring fence business.
The surplus management expenses c/f are £6m because £1m of management expenses are set against the loan relationship credits of £5m.
The capital loss arising on an asset within the QAHC ring fence business cannot be set off against the chargeable gain arising on non-qualifying shares within the QAHC non-ring fence business. Non-qualifying shares are shares where at least 75 percent of their value is derived from UK real property.