HMRC has updated its guidance on the qualifying asset holding companies (QAHC) rules (introduced on 1 April 2022 by FA 2022). The guidance, set out at para IFM40260 of HMRC’s Investment funds manual confirms (in example 4) that loan origination is not by itself an indication that the asset holding company is trading and that, where loans are originated with the intention of being held on a medium to long-term basis as part of the QAHC’s investment strategy, it is likely that this will be part of its overall investment business. In the latter case, income generated by originating and holding the loans, including participation, origination or execution fees, would be investment income.
Fees received for arranging loans for others (e.g. syndication fees) are likely to be the result of trading activity, according to the guidance.
Example 5 in the guidance provides that, in relation to the acquisition of distressed debt, assets acquired with the intention of being held for the medium or long term are likely to constitute investment activity but that, where there are greater levels of activity in relation to those assets (e.g. a restructuring or insolvency process) this could be an indication of trading.
Commenting on the revised guidance, global law firm Proskauer Rose LLP noted: ‘This updated guidance provides a welcome clarification of HMRC’s interpretation of how the QAHC legislation should apply to lending/debt acquisition companies set up by credit funds which should provide a high measure of comfort to asset managers in the credit sphere who are considering using QAHCs within their fund structures. The guidance also provides insight on HMRC’s view as to whether particular loan related activities constitute trading or investment activities as a general matter and, as such, may be more widely useful for credit funds that do not envisage the use of QAHCs within their structures.’
HMRC has updated its guidance on the qualifying asset holding companies (QAHC) rules (introduced on 1 April 2022 by FA 2022). The guidance, set out at para IFM40260 of HMRC’s Investment funds manual confirms (in example 4) that loan origination is not by itself an indication that the asset holding company is trading and that, where loans are originated with the intention of being held on a medium to long-term basis as part of the QAHC’s investment strategy, it is likely that this will be part of its overall investment business. In the latter case, income generated by originating and holding the loans, including participation, origination or execution fees, would be investment income.
Fees received for arranging loans for others (e.g. syndication fees) are likely to be the result of trading activity, according to the guidance.
Example 5 in the guidance provides that, in relation to the acquisition of distressed debt, assets acquired with the intention of being held for the medium or long term are likely to constitute investment activity but that, where there are greater levels of activity in relation to those assets (e.g. a restructuring or insolvency process) this could be an indication of trading.
Commenting on the revised guidance, global law firm Proskauer Rose LLP noted: ‘This updated guidance provides a welcome clarification of HMRC’s interpretation of how the QAHC legislation should apply to lending/debt acquisition companies set up by credit funds which should provide a high measure of comfort to asset managers in the credit sphere who are considering using QAHCs within their fund structures. The guidance also provides insight on HMRC’s view as to whether particular loan related activities constitute trading or investment activities as a general matter and, as such, may be more widely useful for credit funds that do not envisage the use of QAHCs within their structures.’
