MTT10230 - Scope: Excluded entities: Definitions of ‘qualifying service entity’ and ‘qualifying exempt income entity’

The definitions of ‘qualifying service entity’ and ‘qualifying exempt income entity’ are set out in section 127 of Finance (No.2) Act 2023.

These definitions include criteria that requires the calculation of the percentage ownership interest held by excluded entities. See MTT17070 for further guidance.

Qualifying service entity

An entity is a qualifying service entity if it is at least 95% owned by excluded entities, except for pension services entities, and either:

  • the entity only carries out activities that are ancillary to the activities of its owners, or
  • aside from any such ancillary activities, almost all of the entity’s activities consist of holding assets or investing funds for the benefit of its owners.

For the purposes of the activities test, the activities of a permanent establishment and its main entity are to be considered together.

For a permanent establishment, the 95% ownership test is considered to be met if its main entity meets the test.

Qualifying exempt income entity

An entity is a qualifying exempt income entity if it is:

  • at least 85% owned by excluded entities, except for pension services entities, and
  • almost all of the entity’s income consists of excluded dividends, excluded equity gains, or a combination thereof.

For the purposes of this test, the activities of a permanent establishment and its main entity are to be considered together.

For a permanent establishment, the 95% ownership test is considered to be met if its main entity meets the test.

Amendment in Finance Act 2025

Section 127 was amended by FA25. This amendment was made retrospective. This guidance page reflects the current version of the legislation.