12 May 2022

Thank you to everyone who attending the AREF event on Qualified Asset Holding Companies. 

With the new regime launching in April interest has been high across the alternative community, particularly in how it can facilitate investment into real estate assets through UK based holding companies and promote the wider goals of the Government’s UK Fund Regime to enhance the UK’s attractiveness as a location for fund domiciliation. 

The session began with a timely recap from Treasury and HMRC on the development of the regime since it was first proposed back in March 2020, following amendments to BEPS Action 6, and the key features now that it has launched.

Designed to align with a holistic desire for managers, funds and holding companies in a single location the regime offers a range of competitive features, including:

  • exempting gains on disposals of certain shares and overseas property by QAHCs
  • disapplying the interest withholding requirement for Income Tax
  • exempting profits of an overseas property business of a QAHC
  • allowing deductions for certain interest payments that would usually be disallowed as distributions (along with necessary consequential changes to the hybrids rules)
  • allowing premiums paid, when a QAHC repurchases its share capital to be treated as capital rather than income distributions
  • allowing certain amounts paid to qualifying remittance basis users by a QAHC to be treated as non-UK source, reflecting the underlying mix of UK and overseas income and gains
  • exempting repurchases by a QAHC of share and loan capital which it previously issued from Stamp Duty and Stamp Duty Reserve Tax (SDRT)

Following the presentation the panel was moderated by Leonie Webster, a partner at Deloitte and member of the AREF Tax Committee, where she was joined by Christopher Austin, Head of Tax for Private Assets at Schroders, and James McCredie, Partner at Macfarlanes, as well as Matt Parry, Treasury Lead for the UK Fund Regime and Oli Jones, HMRC’s Policy Lead for the QAHC regime

Perhaps unsurprisingly the session focused heavily on the effective impact this new regime could have for UK based managers and HMRC were keen to stress that they viewed applications have already been received on Day 1 as a clear indicator of demand. 

The panel touched on existing investment structures and the prevailing view, at present, that most managers wouldn’t seek to redomicile existing funds, but rather build in a UK option to future deal models, assessing whether investors may have a preference to hold assets onshore.  Early indications suggest that there is already an existing pool of UK based investors, such as LGPSs, with a desire to utilise UK based holding companies. 

This led onto a debate on the current investment landscape and how the introduction had come at an opportune moment for the UK with investors under ever increasing demands for local substance both from a reputational, operational and regulatory perspective.  The panellists discussed the new European UNSHELL Directive and the effects it was having for operators of holding companies across the EU and the potential future risk it posed to treaty relief.  This in turn presented opportunities for the UK to present itself as a credible and potentially necessary alternative.    

More widely it was recognised that the UK may be the beneficiary as capacity within existing European locations becomes increasing costly and resource stretched and manager seek cheaper, more scalable alternatives. 

Not all of the discussions were positive however and it was acknowledged by Treasury, HMRC and industry alike that the eligibility criteria and entry charges still posed significant barriers to the future success of the regime.  Other areas also needed to be addressed including additional guidance on the perineal trading vs investment debate and consideration for parallel funds, feeders and funds of one as well as the wider GDO point.  The 70% cliff edge for qualified investors also brought with it considerable risk in engaging in co-invest structures. 

Treasury conceded that while they haven’t been able to go as far as some in industry would like the entirely of the regime will be under review for the foreseeable and this would include looking at how the REIT rules interacted with QAHCs and possibility of tiered and cross investment. 

The session concluded with the panellists recognising the potential the UK’s new regime offered and while there was more work to be done, the UK is now able to present a credible, competitive and potentially complementary regime to other international locations like Luxembourg. 

We would like to thank all our speakers for providing their insights on this newest development for the UK real estate sector and to members for their informed questions during the discussion. 

If you have any further queries on the event then please contact Chris Hewitt at chewitt@aref.org.uk


whos who me

Chris Hewitt

Tax Advisor, AREF