As many of my clients are institutional investors and fund managers, I am spending significant time on the new UK tax regime for investment holding companies. The qualifying asset holding company (or QAHC, pronounced rather unfortunately as ‘quack’), has particularly useful features which have attracted attention from funds and institutional investors investing in debt, infrastructure and non-UK land. However, difficult areas of uncertainty remain in relation to the 70% ownership condition to be a QAHC (particularly around the ‘diversity of ownership’ test for widely-held funds).
Another area attracting a lot of interest is the UK REIT regime. The introduction in April of a ‘private’ REIT regime (owned at least 70% by institutional investors) has created a simple way for certain US REITs, sovereign investors and widely-held funds to invest tax-efficiently in UK real estate. At the same time, we continue to see consolidation in the public REIT sector.
If you could make one change to tax, what would it be?
My change would be to require HMRC to publish on its website a summary of each clearance that it grants (in a suitably anonymised form, approved by the taxpayer). This would build up an extensive body of publicly available material showing the issues where taxpayers had identified uncertainties in the tax law and sought clarity from HMRC. The published rulings would have a similar status to HMRC’s guidance manuals. Publication of HMRC clearances would help put all taxpayers on an equal footing (rather than just the applicant having the benefit of a clearance), save HMRC time responding to similar queries, promote consistency and increase certainty.
A few other suggestions which might make a difference: each Finance Bill to include the recommendations of professional tax bodies to fix glitches in the tax legislation, use of experienced law firms to help draft tax legislation (the standard of drafting of tax legislation from parliamentary draftsman is depressingly patchy) and compulsory training in tax for the chancellor of the exchequer and chief secretary to the Treasury!
Has a recent tax case caught your eye?
The decision in BCM Cayman LP and another v HMRC [2022] STC 1586, which relates to allocations of partnership profits for UK corporation tax purposes in circumstances where there are tiers of partnerships, is proving to be controversial in the funds and private equity industry. The Upper Tribunal held that a corporate partner’s share in the profits of a trade carried on by a partnership is to be determined for corporation tax purposes without reference to its beneficial entitlement to those profits. The conclusion that the general partner of the top partnership is liable to corporation tax on all of the profits allocated to it by the bottom partnership, even though it is the partners in the top partnership who are beneficially entitled to those profits, seems a surprising outcome. There has been a change in law since the time of the BCM Cayman LP case which partly mitigates the scope of this decision, although the revised legislation doesn’t explicitly address the common position where one partnership invests in another partnership through the general partner of the top partnership. The Upper Tribunal decision has now been appealed to the Court of Appeal, so we should see more clarity in this area.
You might not know this about me but...
My family have strong historic connections with Hong Kong. Every year we celebrate Chinese New Year. I worked in Hong Kong as a trainee solicitor in the late 1990s. My Chinese zodiac sign is the ox, which can be calm, mentally strong and determined, but could also explain a certain stubborn streak!
As many of my clients are institutional investors and fund managers, I am spending significant time on the new UK tax regime for investment holding companies. The qualifying asset holding company (or QAHC, pronounced rather unfortunately as ‘quack’), has particularly useful features which have attracted attention from funds and institutional investors investing in debt, infrastructure and non-UK land. However, difficult areas of uncertainty remain in relation to the 70% ownership condition to be a QAHC (particularly around the ‘diversity of ownership’ test for widely-held funds).
Another area attracting a lot of interest is the UK REIT regime. The introduction in April of a ‘private’ REIT regime (owned at least 70% by institutional investors) has created a simple way for certain US REITs, sovereign investors and widely-held funds to invest tax-efficiently in UK real estate. At the same time, we continue to see consolidation in the public REIT sector.
If you could make one change to tax, what would it be?
My change would be to require HMRC to publish on its website a summary of each clearance that it grants (in a suitably anonymised form, approved by the taxpayer). This would build up an extensive body of publicly available material showing the issues where taxpayers had identified uncertainties in the tax law and sought clarity from HMRC. The published rulings would have a similar status to HMRC’s guidance manuals. Publication of HMRC clearances would help put all taxpayers on an equal footing (rather than just the applicant having the benefit of a clearance), save HMRC time responding to similar queries, promote consistency and increase certainty.
A few other suggestions which might make a difference: each Finance Bill to include the recommendations of professional tax bodies to fix glitches in the tax legislation, use of experienced law firms to help draft tax legislation (the standard of drafting of tax legislation from parliamentary draftsman is depressingly patchy) and compulsory training in tax for the chancellor of the exchequer and chief secretary to the Treasury!
Has a recent tax case caught your eye?
The decision in BCM Cayman LP and another v HMRC [2022] STC 1586, which relates to allocations of partnership profits for UK corporation tax purposes in circumstances where there are tiers of partnerships, is proving to be controversial in the funds and private equity industry. The Upper Tribunal held that a corporate partner’s share in the profits of a trade carried on by a partnership is to be determined for corporation tax purposes without reference to its beneficial entitlement to those profits. The conclusion that the general partner of the top partnership is liable to corporation tax on all of the profits allocated to it by the bottom partnership, even though it is the partners in the top partnership who are beneficially entitled to those profits, seems a surprising outcome. There has been a change in law since the time of the BCM Cayman LP case which partly mitigates the scope of this decision, although the revised legislation doesn’t explicitly address the common position where one partnership invests in another partnership through the general partner of the top partnership. The Upper Tribunal decision has now been appealed to the Court of Appeal, so we should see more clarity in this area.
You might not know this about me but...
My family have strong historic connections with Hong Kong. Every year we celebrate Chinese New Year. I worked in Hong Kong as a trainee solicitor in the late 1990s. My Chinese zodiac sign is the ox, which can be calm, mentally strong and determined, but could also explain a certain stubborn streak!
.tmb-editorspic.jpg?sfvrsn=df04ab27_1)
