In April, the UK introduced a new tax privileged regime for qualifying asset holding companies (QAHCs). However, many in the industry felt that the original guidance on the regime published by HMRC did not provide sufficient clarity as to when the activities of an asset holding company (AHC) would constitute a trade. This was important because a QAHC is almost completely prohibited from trading (trading activities must be both ancillary to the company's main investment business and not substantial).
HMRC has now amended the guidance, providing comfort that a range of activities, especially in the context of credit strategies, should not, of themselves, be considered trading. Importantly, the guidance confirms that where an AHC originates a debt investment rather than acquiring debt on the secondary market this is not, by itself, an indication of trading. Fees are also discussed, with HMRC giving comfort that if a fund is otherwise investing in loans, fee income from originating and holding those loans, including participation, origination or execution fees, should be investment income. However, HMRC consider that fees for arranging loans for others to hold, such as syndication fees, are likely to be the result of trading activity, and so the question will be whether that activity falls within the exemption for ancillary non-substantial trading.
Much of the guidance largely sets out what many taxpayers would anyway have expected to be the position. However, having it set out in published guidance is undoubtedly an improvement, providing important comfort that HMRC's views are (largely) in line with industry. HMRC's updated guidance can be viewed here.