IFM40366 - Becoming a QAHC: other ring fence related points

Amounts surrendered as group relief

PARA 20(8) provides for the application of the group relief rules in CTA10/PT5 and PT5A.

Amounts that arise within a QAHC ring fence business can only be surrendered to another group company which is a QAHC, and can only be set against the ring fence business profits of that QAHC.

Amounts that arise outside a QAHC ring fence business can be surrendered to any group company, but they cannot be set off against any QAHC ring fence business profits.

In other words, losses and other amounts that arise from a QAHC ring fence business can only be surrendered and set against profits which arise from the QAHC ring fence business of another group company, whilst losses and other amounts that arise outside a QAHC ring fence business cannot be set off against any QAHC ring fence business profits of another group company.

In this way, the group relief rules are in line with the rules which apply within a QAHC, in that ring fence and non-ring fence amounts are kept separate, that is, streamed.

Example:

Company D, a QAHC, has the following amounts available to surrender for an accounting period:

  • Non-trade loan relationship deficits of (£10,000) which arose from the QAHC ring fence business; and
  • Trade losses of (£2,000) which arose from QAHC non-ring fence business.

Company D can surrender the £10,000 loan relationship deficits to a group company which is a QAHC. But the deficits can only be set against the QAHC ring fence profits of the group company (PARA 20(8)(a)).

Company D cannot surrender the £2,000 trade losses to set against any profits of the QAHC ring fence business of any group company (PARA 20(8)(b)). But Company D can surrender the £2,000 trade losses to another group company if the losses are set against the profits of the other group company’s non-ring fence business.

In addition, Company D can surrender the £2,000 trade losses to a non-QAHC group company, and those losses may be set against the non-QAHC group company’s profits in the normal way.

Transfer of chargeable gains

PARA 20(9) provides that where a company (that is not a QAHC) and a QAHC within the same group elect to transfer a chargeable gain or an allowable loss to the QAHC, that gain or loss arises outside the QAHC ring-fence business.

That gain or loss can be set against other losses or gains which arise outside the QAHC ring fence business of the QAHC.

Similarly, where a company that is a QAHC and another QAHC in the same group elect to transfer a chargeable gain that arises outside the ring fence then that will be treated as a gain arising outside the QAHC ring fence of the transferee company. PARA 20(9) is not limited to situations where the transferor of the gain/loss is not a QAHC but if the transferor is a QAHC it is only the chargeable gain/allowable loss (that is, arising outside the QAHC ring-fence) that is treated as outside the ring fence business of the transferee QAHC.

REIT distributions

PARA 20(10) provides that any Real Estate Investment Trust (REIT) distribution under CTA2010/PART12/CH6 which is received by a QAHC is treated as the profits of a UK property business which falls outside the QAHC’s ring fence business.

This condition ensures that the normal tax treatment will apply to such REIT distributions.

Guidance on REIT distributions is at IFM28000+.