Finance Act 2022

PART 2 Becoming a QAHC

Entry notification

14 (1) This paragraph makes provision about the making of a notification to HMRC by a company that intends to be a QAHC (an “entry notification”).

(2) An entry notification must—

(a) state the name and (where it has one) the Unique Taxpayer Reference of the company,

(b) specify the date on which it is intended that the company should become a QAHC, and

(c) include one of the following declarations—

(i) that on that date, the company will meet all of the conditions in paragraph 2(1), or

(ii) that on that date the company will meet all of those conditions except for the ownership condition, but it intends to rely on paragraph 16(4) (ownership condition treated as met for first two years of entry into QAHC regime).

(3) The date specified may be no earlier than the later of—

(a) the day after the day on which the entry notification is made to HMRC, and

(b) 1 April 2022.

(4) Where an entry notification is made by a company that, at the time of making it, is resident in a territory outside the United Kingdom, the notification must also—

(a) state the territory in which the company is currently resident,

(b) state any registration number the company has in that territory,

(c) state the date on which it is intended the company will become UK resident.

(5) Where a company makes the declaration mentioned in sub-paragraph (2)(c)(ii) in an entry notification, the notification must also include a declaration that the company reasonably expects the ownership condition to be met within 2 years of becoming a QAHC.

(6) An entry notification comes into force in relation to the company at the beginning of the date specified in accordance with sub-paragraph (2)(b) and continues in force until an exit notification under paragraph 25 comes into force.

(7) Where a company has ceased to be a QAHC, a new entry notification must be made for it to become a QAHC again, other than as a result of paragraph 27(2) (retrospective curing of non-deliberate breach of the activity condition).

Entry into regime

15 (1) A company becomes a QAHC at the beginning of the first day on which all of the relevant conditions are met.

(2) The “relevant conditions” are—

(a) where the company has made an entry notification that includes the declaration mentioned in paragraph 14(2)(c)(i), the conditions in paragraph 2(1), or

(b) where the company has made an entry notification that includes the declaration mentioned in paragraph 14(2)(c)(ii), all of those conditions apart from the ownership condition.

Ownership condition treated as met for initial period

16 (1) Sub-paragraph (4) applies in relation to a company that has made an entry notification that includes the declaration mentioned in paragraph 14(2)(c)(ii).

(2) Sub-paragraph (4) also applies in relation to a company if—

(a) the company meets the ownership condition on becoming a QAHC,

(b) within the first 2 years of its becoming a QAHC, it ceases to meet that condition, and

(c) as soon as reasonably practicable after ceasing to meet that condition the QAHC has notified HMRC of its intention to rely on that sub-paragraph.

(3) A notification under sub-paragraph (2)(c) must—

(a) include a declaration by the QAHC that it reasonably expects the ownership condition to be met before the end of the period of 2 years beginning with the day on which the QAHC became a QAHC;

(b) set out details of the steps (if any) the QAHC has taken, or expects to take, in order to secure the meeting of the ownership condition before the end of that period.

(4) Where this sub-paragraph applies in relation to a company—

(a) the ownership condition is treated as being met in relation to that company for the period of 2 years, or such longer period as HMRC may in writing agree to, beginning with the day on which the company became a QAHC, and

(b) any breach of that condition that occurred before this sub-paragraph applied is treated has having not occurred.

(5) But if, at any time during that period, it becomes apparent to the QAHC that there is no reasonable expectation of the ownership condition being met by the end of that period—

(a) the QAHC must notify HMRC of that fact as soon as reasonably practicable, and

(b) sub-paragraph (4) ceases to apply from the time when it became so apparent.

Corporation tax consequences of becoming a QAHC

17 (1) For the purposes of corporation tax, when a company becomes a QAHC—

(a) a new accounting period begins at the beginning of the day on which it becomes a QAHC, and

(b) accordingly, its previous accounting period ends at the end of the day before it became a QAHC.

(2) The following are to be treated, for the purposes of corporation tax, as sold by a company immediately before becoming a QAHC and reacquired immediately after so becoming—

(a) any overseas land it holds;

(b) any loan relationship or derivative contract the company is party to for the purposes of an overseas property business of the company, to the extent (apportioned on a just and reasonable basis)—

(i) the relationship or contract is attributable to those purposes, and

(ii) profits arising from that relationship or contract will be exempt from corporation tax as a result of paragraph 52(4);

(c) any qualifying shares (see paragraph 53) it holds.

(3) The sale and reacquisition deemed under sub-paragraph (2) is to be treated as being for a consideration equal to the market value of the assets.

(4) Where—

(a) a company (“C”) becomes a QAHC,

(b) C holds a substantial shareholding in another company (see Schedule 7AC to TCGA 1992) as a result of holding qualifying shares,

(c) those shares were subject to a deemed sale and reacquisition under sub-paragraph (2),

(d) at the time of the deemed sale, the shares had been held by C for less than 12 months,

(e) C continues to hold those shares until they have been held for a period of 12 months (whether or not C remains a QAHC at the end of that period), and

(f) if C were to dispose of them immediately after the end of that period, any gain on that disposal would not be a chargeable gain as a result of an exemption under Part 1 of Schedule 7AC to TCGA 1992 (exemptions for disposals by companies with substantial shareholding),

any gain accruing to C on the deemed sale of the shares is not a chargeable gain.

(5) But for the purposes of sub-paragraph (4)(f), Schedule 7AC to TCGA 1992 has effect as if—

(a) paragraph 9 of that Schedule (aggregation of holdings of group companies) were omitted, and

(b) in paragraph 19(1), the references to the time of the disposal were instead to the end of the 12 month period referred to in sub-paragraph (4)(e).

(6) Paragraph 11 of Schedule 7AC to TCGA 1992 (effect of deemed disposal and reacquisition) has effect as if any reference to a “deemed disposal and reacquisition” did not include a deemed sale and reacquisition under sub-paragraph (2) of this paragraph.

Application of paragraph 17(2) to formerly non-resident companies

18 Paragraph 17(2) does not apply to assets held by a company that was previously resident in a territory outside the United Kingdom and became UK resident within the 30 days before it became a QAHC if those assets were held immediately before it became UK resident.

Adjustment of gains to avoid double charge

19 Where—

(a) a chargeable gain (the “relevant gain”) accrues to a company on a deemed sale of qualifying shares as a result of paragraph 17(2), and

(b) the value of those shares reflects the value of an asset in respect of which a chargeable gain (“the underlying gain”) accrues, or would accrue if paragraph 18 were ignored, to another company as a result of paragraph 17(2) on the same day as, or before, the relevant gain accrued,

the relevant gain is to be reduced (on a just and reasonable basis and not to below nil) by an amount reflecting the amount of the underlying gain.

Ring fencing of QAHC business

20 (1) For the purposes of this Schedule “QAHC ring fence business” in relation to a QAHC means the business of carrying out its main activity (see paragraph 13(1)(a)) in relation to—

(a) overseas land, to the extent income generated from that land is exempt from corporation tax as a result of paragraph 52(1) (exemption for overseas property income of a QAHC);

(b) qualifying shares (see paragraph 53);

(c) any creditor relationship of the QAHC to the extent the QAHC is not party to it for the purposes of a trade or a UK property business;

(d) any derivative contract to the extent that the underlying subject matter of the contract is overseas land falling within paragraph (a), qualifying shares or debt;

(e) any derivative contract to the extent that the QAHC is party to it for the purposes of carrying out its main activity in relation to any of the things mentioned in paragraphs (a) to (d).

(2) A QAHC ring fence business of a QAHC is to be treated for corporation tax purposes as separate and distinct from—

(a) all other activities carried on by the QAHC,

(b) any activity carried on by the QAHC before it became a QAHC, and

(c) any activity carried on by the company after it has ceased to be a QAHC.

(3) For the purposes of calculating the amount of corporation tax payable by a QAHC, the QAHC’s ring fence business is to be treated as a separate company distinct from the QAHC carrying on any other activity (including any activity carried on before or after it is a QAHC).

(4) Accordingly—

(a) no loss of a QAHC arising outside its QAHC ring fence business may be set off against profits of that business (including any loss made by a company before it became a QAHC), and

(b) no loss arising within a QAHC ring fence business may be set off against profits of any other activity carried on by the QAHC (including any activity carried on by it before it became, or after it has ceased to be, a QAHC).

(5) But despite sub-paragraph (3) a QAHC is to provide a single company tax return relating to its QAHC ring fence business and any other activities carried on while it is a QAHC.

(6) Where any asset, receipt (including any credit), loss or gain relates to both the QAHC ring fence business and to the other activities of the QAHC (whether they are carried on while it is a QAHC or not) that asset, receipt, loss or gain is to be apportioned (on a just and reasonable basis) between the QAHC ring fence business and the other activities of the QAHC.

(7) In sub-paragraphs (4) and (6) references to a loss include references to a deficit, expense, charge or allowance.

(8) Losses or other amounts surrendered under Part 5 or 5A of CTA 10 (group relief)—

(a) that arise within the QAHC ring fence business of a QAHC may only be set off against profits of another company if that company is a QAHC and those profits arose within the QAHC ring fence business of that company;

(b) that do not arise within a QAHC ring fence business of the company surrendering them may not be set off against profits of a QAHC that arise within its QAHC ring fence business.

(9) Where a company and a QAHC have, in accordance with section 171A(4) of TCGA 1992, elected to transfer a chargeable gain or an allowable loss to the QAHC, that gain or loss arises outside its QAHC ring fence business.

(10) A distribution received by a QAHC that, as a result of Chapter 6 of Part 12 of CTA 2010 (Real Estate Investment Trusts), is treated as profits of a UK property business is received outside its QAHC ring fence business.

(11) In this paragraph “creditor relationship” has the meaning it has in Part 5 of CTA 2009 (see section 302 of that Act).

Disapplication of Part 7ZA of CTA 2010

21 In determining the profits of a QAHC ring fence business, Part 7ZA of CTA 2010 (restrictions on obtaining certain deductions) is to be ignored.

Assets entering and leaving the ring fence

22 (1) Sub-paragraph (2) applies to an asset held by a QAHC outside its QAHC ring fence business if that asset enters that ring fence business (whether because of a change of use or status of the asset or otherwise) and the asset is one of the following—

(a) overseas land;

(b) a loan relationship or derivative contract the QAHC is party to for the purposes of an overseas property business of the QAHC, to the extent (apportioned on a just and reasonable basis)—

(i) the relationship or contract is attributable to those purposes (including any such relationship or contract that the QAHC was not party to for those purposes before it entered the ring fence business), and

(ii) profits arising from that relationship or contract are exempt from corporation tax as a result of paragraph 52(4);

(c) qualifying shares (including anything that was not a “qualifying share” before it entered the ring fence business).

(2) Where this sub-paragraph applies to an asset, that asset is treated, for the purposes of corporation tax, as sold by the QAHC immediately before it entered the QAHC ring fence business and reacquired immediately after it entered that ring fence business.

(3) Any chargeable gain or allowable loss accruing to a QAHC on a deemed sale under paragraph (2) arises outside its QAHC ring fence business.

(4) Sub-paragraph (5) applies to an asset held by a QAHC within its QAHC ring fence business if that asset leaves that ring fence business (whether because of a change of use or status of the asset or otherwise) and the asset is one of the following—

(a) overseas land;

(b) a loan relationship or derivative contract that, when it was held within the ring fence business, the QAHC was party to for the purposes of an overseas property business of the QAHC, to the extent (apportioned on a just and reasonable basis)—

(i) the relationship or contract was attributable to those purposes, and

(ii) profits arising from that relationship or contract are exempt from corporation tax as a result of paragraph 52(4);

(c) anything that was a “qualifying share” (see paragraph 53) when it was held within the ring fence business.

(5) Where this sub-paragraph applies to an asset, that asset is treated, for the purposes of corporation tax, as sold by the QAHC immediately before it left the QAHC ring fence business and reacquired immediately after it left that ring fence business.

(6) Any chargeable gain or allowable loss accruing to a QAHC on a deemed sale under paragraph (5) arises within its QAHC ring fence business.

(7) A sale and reacquisition deemed under sub-paragraph (2) or (5) is to be treated as being for a consideration equal to the market value of the assets.

(8) Paragraph 11 of Schedule 7AC to TCGA 1992 has effect as if any reference to a “deemed disposal and reacquisition” did not include a deemed sale and reacquisition under sub-paragraph (2) or (5) of this paragraph.

Adjustment of gains to avoid double charge on assets crossing the ringfence

23 Where—

(a) a chargeable gain (the “relevant gain”) accrues to a QAHC under paragraph 22(2) on a deemed sale of shares,

(b) the extent of that gain reflects the proceeds of a disposal of another asset in respect of which a chargeable gain (“the taxed gain”) has accrued to any person,

the relevant gain is to be reduced (on a just and reasonable basis and not to below nil) by an amount reflecting the amount of the taxed gain.

Information to be provided for accounting periods

24 (1) A company that is, or has been, a QAHC must send a return to HMRC in relation to each accounting period for which it is a QAHC containing the following information (whether or not that information is included in its company tax return)—

(a) the name and Unique Taxpayer Reference of the QAHC,

(b) the name, Unique Taxpayer Reference (if any) and address of any person who has provided investment management services to the QAHC during the course of that accounting period,

(c) an estimate of the market value of the assets of the QAHC’s ring fence business as at the end of that accounting period, and

(d) statements of—

(i) the gross proceeds arising from disposals of assets from the ring fence business during the accounting period, and

(ii) the amounts of any payments made by the QAHC on the redemption, repayment or purchase of its own shares.

(2) Where investment management services are provided to the QAHC by a partnership, the reference in sub-paragraph (1)(b) to a person providing investment management services is to the partnership and not to any partner who may be providing those services in the course of the partnership’s business.

(3) The Treasury may by regulations amend sub-paragraph (1) so as to add to, vary or omit items in the list of information to be contained in a return under this paragraph.

(4) A return under this paragraph must be provided before the end of the filing date for the company tax return for the accounting period to which the return relates.

(5) Where a QAHC fails to provide a return under this paragraph by that time, the QAHC is liable to a penalty of £300.

(6) Paragraphs 18 to 23 of Schedule 55 to FA 2009 (penalty for failure to make returns etc) apply to a penalty under sub-paragraph (5) as they apply to a penalty under a paragraph of that Schedule as if—

(a) in paragraph 18, sub-paragraphs (4) to (7) were omitted,

(b) in paragraph 19—

(i) in sub-paragraph (1), for “on or before the later of date A and (where it applies) date B” there were substituted “before the end of the period of 6 years beginning with the date on which the QAHC became liable to the penalty”, and

(ii) sub-paragraphs (2) to (5) were omitted,

(c) in paragraph 20, sub-paragraph (2) were omitted,

(d) in paragraph 22, sub-paragraphs (2) to (4) were omitted, and

(e) in paragraph 23(1), paragraph (b) were omitted.