IFM40440 - Ceasing to be a QAHC: wind-down period

FA222/SCH2/PARA28 provides for a two-year grace period where a QAHC’s business is being wound down. It applies in cases where the ownership condition is breached, due to either a qualifying fund ceasing to be a category A investor (for example, because a fund relying on being non-close for its status has become close), or due to a repurchase or redemption by the QAHC of securities giving rise to relevant interests. It is intended to deal with circumstances where investors are looking to cash out, and so reducing their interests at either fund or QAHC level.

In order to qualify for the grace period, the QAHC must intend to cease its QAHC ring fence business as soon as is reasonably practicable. The QAHC must also have notified its intention to do so as soon as reasonably practicable after becoming aware of the breach.

To reflect the fact that the QAHC should be in run-off, the QAHC will leave the regime immediately if it raises capital or acquires any assets during the two-year period. Note that this prohibition applies only to the QAHC, its non-QAHC subsidiaries are unrestricted in their activities.

There is, however, an exception to this rule for transactions that are reasonably necessary to enable the QAHC to cease its QAHC ring fence basis, or transactions reasonably necessary to prevent the insolvency of the QAHC or an entity in which it has an interest.

Extension requests

The two-year period may be extended by agreement with HMRC’s QAHC team. (see IFM41210 for contact details.)

A similar approach should be taken to that relating to extensions of the two-year ramp up period (IFM40320) or the 90-day period for cures of breaches of the ownership condition (IFM40430).

HMRC will consider each request on its merits to determine if the QAHC is taking steps to conclude its business. Exiting the regime may have tax consequences for the investors. HMRC will not permit an extension to the two-year period where the intention is for the QAHC to improve the performance of an investment at some point in the future. This indicates the intention to continue its investment business rather than to close it down in an orderly manner.