UK Qualifying Asset Holding Company (QAHC)

In April 2022 the UK QAHC regime comes into place. This type of company must be diversely held as opposed to closely held. Its tax effect is very similar to the foreign branch election for trading companies, but with the difference that closely held trading companies can make a foreign branch election whereas a QAHC must be a diversely held entity to qualify for this regime.

It is an attempt by the UK to bring fund regimes into a simple UK tax free structure.

A QAHC will be exempt from tax on dividends and interest received from non-UK sources and free from capital gains tax on all assets other than UK land and UK property rich company shares. A QAHC will be able to pay interest to anyone without having to account for withholding tax.

A QAHC will therefore be basically a tax exempt fund entity. That does, however, raise the possibility of it being denied relief under the UK’s double tax relief, for example from a withholding tax abroad, and of course it could fall foul of what the OECD are looking at under Pillar I and II as “holding companies” (by which they mean conduits) and substance requirements.

It will suffer VAT on its costs and presumably one would expect that unless the QAHC is authorized for the purposes of the Financial Services and Markets Act 2000 that any management fee would bear VAT, but as most of its assets are likely to be outside the UK, that VAT should be recoverable at least in part.

The QAHC will be exempt from tax in respect of all assets except for UK land and shares in UK property rich companies. Apart from that there will be

• no corporation tax,
• no withholding tax,
• no capital gains tax,

but of course, if the QAHC is incorporated in the United Kingdom, then it will be a chargeable asset for inheritance tax purposes (the requirement for QAHC is that it is tax resident in the United Kingdom, but not necessarily incorporated here).

The key test is that the ownership has to be diverse. If you equate that with not a close company, then you have a good sense of what is required.

One therefore has a simple English company which, provided it meets a few tax tests, will be completely free of UK direct taxation in respect of its investments, its activity, and its distributions.

Certainly, a valuable tool for the non-closely held market.