IFM40350 - Becoming a QAHC: ring fence business

FA22/SCH2/PARAS 20 to23 

The purpose of the ring fence provisions is to ensure that the profits, gains, losses and expenses which arise in respect of the qualifying main activities of the QAHC are kept separate from any amount arising from non-qualifying activities. 

The ring fence business of a QAHC is defined in PARA 20(1). All ring fence business consists of carrying on the main activity of the QAHC, as defined in FA22/SCH2/PARA13(1)(a) (IFM40255). 

The main activity is defined in PARA 13(1)(a) as the carrying on of an investment business (IFM40265).  

PARA 20(1) defines the QAHC ring fence business of a QAHC as the carrying on of its investment business in relation to: 

(a) overseas land, to the extent that any income generated is exempt from corporation tax by virtue of the QAHC exemption for overseas property income in FA22/SCH2/PARA52; 

(b) qualifying shares, these being shares which would be exempt from chargeable gains on disposal by virtue of FA22/SCH2/PARA53; 

(c)  creditor relationships, except to the extent that the QAHC is party to them for the purposes of its trade or UK property business; a creditor relationship is defined in CTA09/PT5/S302 (CFM31010); 

(d) derivative contracts to the extent that the underlying subject matter is overseas land within (a) above, qualifying shares within (b) above, or debt; or 

(e) derivative contracts to the extent that the QAHC is party to them for the purpose of carrying on its investment business in relation to anything within (a) to (d) above. 

It follows from this definition of the QAHC ring fence business that all other activities of the QAHC will fall outside the ring fence – for example:  

  • investment in non-qualifying shares (see PARA 53);
  • carrying on a UK property business;
  • carrying on an overseas property business which is not exempt from corporation tax by virtue of the QAHC rules in PARA 52;
  • carrying on any trading activity; or
  • any creditor relationships relating a UK property business or trading activity carried on by the QAHC (which would include, for example, interest received on cash deposits).

In relation to trading activity, the activity condition in FA22/SCH2/PARA13(1) can only be met if any activity other than investment business is ancillary to that investment business, and is not carried out to any substantial extent. This condition is designed to ensure that any trading activity carried on by a QAHC is very limited (IFM40255). 

Conversely, the ring fence rules in FA22/SCH2/PARA20 do not themselves include any limits in relation to the activity which can be carried on inside and outside the QAHC ring fence. Whilst the QAHC regime applies certain specific rules to amounts which arise inside the ring fence, amounts which arise outside the ring fence will be subject to the normal corporation tax rules.