The Qualifying Asset Holding Company regime

Much anticipated launch of the Qualifying Asset Holding Company regime to take place on 1 April 2022.

Much anticipated launch of the Qualifying Asset Holding Company regime to take place

The Qualifying Asset Holding Company (QAHC) legislation has been finalised as part of Finance Act 2022 and its much-anticipated launch will take place in a little under two weeks. This article comments on the practical application of the eligibility conditions, the circumstances where QAHCs are being actively considered, and the expected benefits of using a QAHC. The QAHC regime has been designed to facilitate the use of UK companies in structures used by certain institutional investors and funds to hold assets across a range of private market investment strategies. The QAHC regime sets out to achieve this by creating a streamlined and beneficial tax regime for eligible companies who notify into the regime.

In advance of the QAHC regime’s 1 April 2022 launch, HMRC have published guidance and the portal for giving notification to HMRC of a company’s entrance to the regime is live. A summary of the rules can be viewed in our QAHC regime brochure.

Eligibility conditions

The eligibility criteria for entrance into the regime include an ownership, activity, and investment strategy condition.


Brief overview

The ownership condition broadly requires that the QAHC is not more than 30 percent owned by investors who are not ‘good’ or ‘Category A’ investors. The definition of Category A investors includes many institutional type investors (such as pensions and sovereigns) and certain qualifying funds.

Funds are considered qualifying funds (and therefore Category A investors) if they are: (i) 70 percent owned by Category A investors; (ii) non-close; or (iii) a collective investment scheme and meet the genuine diversity of ownership (GDO) condition. 

The GDO condition broadly requires for a fund to be actively marketed to a specified category of investor.

There are specific rules to determine the ‘relevant interests’ in a company for the purpose of testing the 30 percent requirement, and an anti-fragmentation rule to prevent the ownership condition being artificially circumvented.

There is also a special rule relating to carried interest, which broadly requires the entitlement to profits under investment management profit sharing arrangements to be set to the maximum share over the life of the arrangement. This applies for the purpose of the 30 percent test and in a similar manner for testing whether a fund is close.

Practical application

In many structures it will be straightforward to determine that the ownership condition is met. For example, where a QAHC is wholly owned by a sovereign, or a fund which is in turn owned by UK registered pension scheme investors.

However, in other cases, the position may require detailed analysis. For example, in the case of a limited partnership fund which sets up a wholly owned QAHC, it will be necessary to examine whether the investor mix means that the fund meets the 70 percent owned by Category A investors or non-close requirements, or the GDO condition.

It may not be obvious whether the 70 percent owned by Category A investors or non-close requirement is met. This could be because of uncertainty whether fund investors qualify as Category A investors, or because of ownership by other third-party fund partnership vehicles. The rights to carried interest and management co-investment may also have an impact.

In relation to the GDO condition, existing funds may not have had cause to consider the GDO condition previously and whether the fund was actively marketed will depend on the facts and circumstances at the time capital was raised. Those experienced in applying the GDO condition to close ended funds as part of the non-resident capital gains tax rules may find this experience useful. HMRC have provided guidance in this context and also provide helpful comments in relation to testing the GDO condition at the outset of a fund’s life in the QAHC guidance. This guidance should help mitigate concerns over whether close ended fund structures are capable of meeting the GDO.

It is also expected that QAHCs will be established by funds for specific acquisitions and the fund may invest alongside other parties such as co-investors or a co-investment vehicle, corporate partners, and management. In these circumstances, it will be important to consider the status of the investing parties, including whether they are Category A investors or whether it is possible to look through to ultimate Category A investors. The anti-fragmentation rule will also be relevant where an investor holds a direct and indirect interest in the QAHC.

We expect that over time, and particularly in relation to new structures, asset managers will request information from investors in order to help determine and evidence that the ownership condition is met. New structures will also be designed with the requirements in mind – such as assessing the appropriateness of parallel or feeder type vehicles and how co-investment and carried interest is structured. As a consequence, in our view, the ownership condition is unlikely to act as a significant deterrent to the take up of the QAHC regime in appropriate circumstances.

Activity and investment strategy conditions

Brief overview

In order to be a QAHC a company must have a main activity of an investment business and only carry-on other activities to the extent that they are ancillary to the investment business and not carried on to any substantial effect.

The investment strategy condition requires that the QAHC does not have a strategy of investing in listed equities or interests which derive their value from listed equity positions.

Practical application

HMRC have noted in the QAHC guidance that the provision of intra-group services to investee companies is likely to be considered ancillary to an investment business. This should mitigate concerns that building operations and substance within QAHCs could cast doubt over whether the activity condition is met. Substance and where it is located is an ongoing topical matter particularly as a consequence of EU proposals relating to shell entities (or ATAD 3).

As expected, and confirmed by HMRC’s QAHC guidance, whether a company is engaged in a trade rather than investment business will be based on normal UK tax principles. In the majority of cases, it should be straightforward to determine whether this is the case. However, certain funds, such as those active in loan origination, will need to carefully assess the facts and circumstances of their proposed strategy in order to consider whether this condition can be met.

Meeting the investment strategy condition should be straightforward for most private market funds. HMRC guidance provides clarification that this condition should not ordinarily be considered to be failed in public take-over situations or as a consequence of exit via IPO with a lock-up period.

The use of QAHCs and the possible benefits


Once a company has entered the regime, the QAHC benefits from a modified tax regime using a ring-fence approach. The key features of the regime are a broad capital gains tax exemption, an exemption from the requirement to withhold UK tax from payments of interest, the potential to deduct interest on profit related debt instruments, and the ability to repatriate capital in the form of capital via a share buy-back. There are also further modifications and simplifications which seek to address the barriers which have previously prevented the broader use of UK companies within structures used by institutional investors and alternative funds.

Possible uses

As a consequence, we are seeing interest in the regime significantly grow ahead of launch. The QAHC is rapidly moving out of concept phase and being considered as an option in live projects. The following examples are areas where we are seeing this in practice:

Deal structures: The use of QAHCs is being actively considered within live deal scenarios. The drivers for this vary from case-to-case. However, consistent themes are: (i) the exemption from UK interest withholding tax, which is attractive compared to the administrative burden of the Eurobond exemption or applying under the Double Tax Treaty Passport Scheme; (ii) the straight-forward capital gains tax exemption; and (iii) the ability to repatriate gains to UK investors including carried interest in the form of capital.

New fund/holding structures: When raising new vehicles, managers are in many cases seeking to include flexibility within documentation to in future incorporate QAHCs in the structure. The QAHC regime allows the use of non-UK incorporated, UK tax resident entities, thereby permitting the ‘onshoring’ of platform vehicles (discussed further below). There is particular interest amongst credit funds, which often use corporate entities to hold debt positions. Analysis of outcomes is ongoing with managers starting to assess the consequences in detail - including accounting and cost considerations.

Existing UK companies: Institutional investors and funds which already have UK companies as part of their structures are assessing the merits of entering the regime. While entering the regime will create a deemed disposal of assets entering the ring-fence at market value, in many circumstances this will not crystallise a tax charge because of the applicability of the substantial shareholding exemption. Entering the regime could have the effect of simplifying the tax position of these entities and create opportunities for additional investments to be located in the UK.

Onshoring: Others are considering their structures more broadly and assessing whether entities which are currently non-UK resident could be onshored either by way of moving central management and control or a reorganisation. The QAHC rules contain specific provisions relating to entry for companies which are newly UK resident. Drivers for onshoring include entity rationalisation and consolidation of substance.


In addition to the QAHC regime being competitive from a taxation perspective, the broader benefits of using QAHCs are being assessed. This includes considerations such as operating model simplification and leveraging existing capabilities and service provider relationships in the UK.

The EU proposals relating to shell entities (or ATAD 3) are also causing investors and asset managers to consider the suitability of their existing structures. A benefit of the QAHC regime to investors and asset managers with a large UK footprint is that using a UK structure aligns with people and operations and may make the structure less open to challenge in relation to the claiming of benefits under Double Taxation Treaties. The eligibility criteria may also add robustness to how the QAHC regime is perceived internationally making it sustainable and perhaps less likely to be challenged. Investor preferences are also starting to influence where holding vehicles are located.

Closing remarks

The launch of the QAHC regime is an exciting development and creates significant opportunities for institutional investors and eligible funds to locate asset holding vehicles in the UK.

Ahead of the launch of the regime, the eligibility conditions and tax outcomes are being considered in detail and analysed in real scenarios. Given the possible benefits of the regime and international focus on substance we expect interest in the regime to continue to grow post launch.

HM Treasury also recently released a response to a broader Call for Input into UK funds and are taking forward plans for an onshore Professional Investor Fund. Reforms have also been made to the real estate investment trust regime and further reforms are anticipated. These reforms in conjunction with the QAHC regime are aimed at maintaining and developing the UK’s position as an international centre for asset management and financial services.

KPMG in the UK is currently assisting a range of investor types consider the use of QAHCs in their structures and closely monitoring broader UK fund developments relevant to institutional investors and alternative fund managers.

Please contact your usual KPMG in the UK contact or Simon Hart, Martin Walker, or Michael Bolan if you would like to discuss.