QAHCs – one year in, what are the practical considerations?

QAHCs – one year in, what are the practical considerations?

It has been just over a year since the UK introduced its Qualifying Asset Holding Company (‘QAHC’) regime and QAHCs have attracted a lot of attention from asset managers and investment funds. In this article, we summarise BDO’s practical experience of the most common reasons for using a QAHC and set out some challenges that arise.

Common reasons for considering a QAHC

Master Holdco

A Master Holdco structure effectively comprises a single company owned by a fund, which holds interests in several portfolio groups. When compared to using individual holding companies for each portfolio group, it offers savings on administrative costs and operational simplification.

Traditionally, the use of a Master Holdco was common in Luxembourg as, using different classes of shares and partial liquidations can allow the repayment of proceeds following a disposal of an individual portfolio group in a tax-efficient capital form which mirrors the underlying disposal, without requiring a full liquidation or dissolution of the Master Holdco.

The QAHC regime was created by HM Treasury to encourage asset managers to invest using UK structures. Some of key ways the rules facilitate the use of UK Master Holdco structures are:

  • Facilitating the buy back of a QAHC’s own shares in a tax-efficient, capital form for UK tax purposes, effectively akin to a partial liquidation.
  • Allowing certain corporate entities, which would otherwise be grouped together, to be treated separately for the purposes of the corporation interest restriction (‘CIR’). This means that each underlying UK portfolio group may be entitled to its own £2 million annual interest de minimis.

A significant number of mid-market PE houses are headquartered in the UK and we have seen that operating a Luxembourg structure has become increasingly expensive: equally, it is becoming more difficult to maintain the required level of substance in the wake of various EU anti-avoidance measures. With the introduction of the QAHC regime in the UK, UK headquartered PE houses are now able to access similar benefits to that of a Luxembourg structure and, because there are already people operating activities in the UK, it is easier to maintain substance in the QAHC than create this in overseas jurisdictions.

Buy backs

Another attractive feature of the QAHC regime is the ability of a QAHC to buy back its own shares in a tax-efficient manner can benefit existing structures where a holding company has underlying investments that may be sold at separate times. In these circumstances, making a QAHC election for the holding company means that it can return sale proceeds from the sale of one of the investments in a tax-efficient manner (this may not have been possible before).

Managing UK interest deductibility

The QAHC regime disapplies the following provisions:

  1. Reclassification of interest as a distribution under the special securities rules.
  2. The late paid interest rules, which means that interest deductions are broadly available on an accruals basis, so it is no longer essential to pay the interest (in cash or via the issue of PIK notes) to realise a tax deduction.
  3. QAHC’s are not required to withhold UK tax on interest in respect of any debt, including shareholder and third-party debt. The withholding tax previously would need to be managed by way of listing the loan on a ‘recognised stock exchange’ which could be costly.

NB 1 and 2 are only disapplied for the QAHC’s ringfenced business.

These exclusions make it easier to manage the QAHC’s tax position and without compelling funds to incur unnecessary costs and time associated with listing loan notes on a recognised stock exchange.

Where the substantial shareholding exemption (‘SSE’) does not apply

QAHCs are exempt from corporation tax on gains made on qualifying shares (ie shares other than those which derive 75% or more of their value from UK land): this is a broader tax relief than the substantial shareholding exemption. We have seen opportunities in the market to utilise QAHC’s where either an investment will not meet the substantial shareholding exemption requirements or where it is anticipated that an existing investment may drop below the required thresholds.

For real estate holdings

QAHCs are exempt from UK corporation tax on income and gains arising from non-UK real estate (either directly or indirectly held) which allows overseas properties to be managed from the UK without an additional layer of tax to be managed. Removing this key practical concern has allowed many more structures for owning non-UK real estate to be operated in the UK.

While there is no immediate relief available for tax on income and gains arising from UK situated property, the disapplication of withholding tax on interest paid to overseas investors provides an opportunity for asset managers to onshore property holding vehicles by changing residency of those entities to the UK and making an election as a QAHC. Of course, for UK real estate holdings there is no entry charge on entering the QAHC regime.

Other benefits of the QAHC rules relating to extraction of funds such as the late paid interest rules relaxation, rules making it easier to extract cash in a capital form and simplifying the anti-hybrid rules are also attractive to asset managers. QAHCs are, therefore, now regularly being established by UK property owning asset managers.

Following the changes to taxation of UK real estate income and gains over the last few years, the barriers to onshoring are reducing and the QAHC regime may help funds clear the final hurdle.

Challenges we have seen

We have encountered certain challenges when working with clients who have set-up QAHCs:

Monitoring the ownership condition

A QAHC needs to meet the ownership condition, ie the sum of ‘relevant interests’ in the company held by persons who are not category A investors cannot exceed 30%. Category A investors are defined as:

  • Another QAHC
  • A qualifying fund
  • A relevant qualifying investor
  • An ‘intermediate company’
  • Certain defined public authorities.

A QAHC must take reasonable steps to monitor whether the ownership condition continues to be met particularly where co-investment is expected to be introduced into the structure in the future. Where the ownerships structures are complex, assessing and monitoring this requirement can be difficult in practice. Read more on the ownership condition here.

Share buy backs and reserves

Any buy back of shares needs to satisfy company law requirements including the need for the company to have sufficient distributable reserves. The availability of sufficient distributable reserves, particularly for a Master Holdco, can create challenges: for example, where one or more investments has generated loss. Additional flexibility to undertake share buy backs could be achieved through using a Master Holdco incorporated in a jurisdiction with more flexible company law requirements (eg Jersey or Guernsey) but which is UK tax resident (and, therefore, still able to benefit from the QAHC regime). However, this approach may not be palatable for all investors and, in addition, there could be high costs in relation to the share buy back ie legal fees etc.

Holding listed equity securities

The acquisition and holding of equity securities that are listed or traded on a recognised stock exchange is difficult to achieve with a QAHC. Amendments in relation to the investment strategy condition were published in March 2023 – these will allow a QAHC to hold listed securities and still meet the investment strategy condition. However, the QAHC will be taxable on the dividend income receivable from such securities - so this may not be particularly attractive.

Entry tax charge

It may not be possible to elect existing companies into the QAHC regime without incurring a tax charge which is preventing some companies from accessing and benefitting from the regime.


Overall, our experience to date is that, while they are not right for all situations, QAHCs can be effective in certain fund structures; they are comparatively straightforward and cost effective to implement and operate, and HMRC have been supportive in working with taxpayers to make the regime work. 

Please get in touch to discuss whether a QAHC could work for your business – please contact Matthew Glover, James Pratt, Jennifer Wall or John Middlemass.