Typically private equity funds tend to be structured with tax transparent limited partnerships formed to pool investment from investors, with the European and sometimes UK assets almost uniformly held through a master asset holding company. It is vital that the AHC does not impose a layer of tax other than what the ultimate investor would have paid had they invested directly in the underlying asset.
Key attributes of the regime for a typical private equity structure
A broad exemption from tax on capital gains is provided for. The UK AHC will provide a blanket exemption for capital gains received in relation to disposals of shares (other than UK real estate rich companies) and overseas real estate. No conditions are attached unlike the UK’s Substantial Shareholding Exemption or other territories’ participation exemptions.
Access to double tax treaties to ensure there is no excess local tax. The UK has a wide-ranging network of double tax treaties in place making it a well-placed holding company jurisdiction.
No withholding tax on payments of interest or distributions is imposed. The UK AHC regime provides an exemption for withholding tax on interest paid to complement its existing exemption for distributions.
The ability to repatriate capital proceeds as capital is provided for. One of the major drawbacks of the existing UK tax system was the inability to repatriate capital gains without converting it to dividend income. The UK rules will be amended to ensure share buy-backs are taxed as capital.
A stamp duty exemption is offered. The UK AHC regime provides for stamp duty and SDRT relief on share buybacks but stops short of a full exemption.
- Special rules will prevent foreign income and gains being converted into UK source as they pass through a UK AHC.
- A number of eligibility criteria need to be satisfied in order for a UK company to enter the UK AHC regime.
- Category A investors are defined broadly as qualifying funds (i.e. collective investment schemes that meet the genuine diversity of ownership conditions or AIFs or CISs which meet either the GDO condition or a non-closeness test. Other good investors include life insurance businesses, REITs and overseas equivalents, pension funds, sovereign investors, other QAHCs and certain other intermediary companies.
The UK AHC regime is unique in that entry into the regime requires satisfying a number of eligibility criteria. Broadly, to become a Qualifying Asset Holding Company (QAHC), the QAHC must meet the (1) ownership condition and (2) activity and investment strategy condition.
- Be held by at least 70% good investors (referred to as Category A investors).
- Category A investors are defined broadly as collective investment schemes and alternative investment funds (CIS and AIF) that meet genuine diversity of ownership conditions or in the case of some funds, meet a non-closeness test. Other good investors include life insurance businesses, REITs and overseas equivalents, pension funds, sovereign investors, other QAHCs and certain other intermediary companies.
Activity and investment strategy conditions
- The main activity of the QAHC is carrying on an investment business and any other activities should be ancillary and not be carried out to a substantial extent.
- The QAHC company strategy should not involve the acquisition of listed securities unless it can demonstrate that the purpose of the acquisition to change the control and delist it.
Entry and exit to the regime will be on an elective basis (unless the conditions cease to be met, in which case a grace period applies) and will result in a deemed disposal and reacquisition of investments.
UK asset holding company regime
In spring 2022, the UK will introduce a new asset holding company (AHC) regime which will allow investment funds to base their “under the fund” investment holding structures in the UK rather than Luxembourg or Ireland.Back to the AHC hub