UK Asset Holding Firms: What Does the Future Maintain? – VAT


UK Asset Holding Companies: What Does the Future Hold?

March 01, 2021

Cadwalader, Wickersham & Taft LLP

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The UK Government's public consultation on Asset Holding
Corporations (AHCs) are just done after they started running December 15th.
2020 to 23 February 2021. The UK Government's goals in
The consultation was to improve the government
Understanding the AHCs, the fund structures in which they are used,
and the commercial drivers of their location as well
Introduce legislative changes that bring clear benefits
Facilitating the flows of capital, income and profits between
Investors and the underlying investments in the AHCs. The first
The consultation document was published as part of the United Kingdom in March 2020
Ministry of Finance 2020 budget (first consultation). The second
Consultation document (Second Consultation) was published in
December 2020 and launched the public consultation phase, the
has just closed.

In conclusion, the second consultation focused on the trial
Reduce a number of key barriers in designing a functional and functional
attractive regime for British AHCs. We have summarized some of the keys
Aspects of the second consultation below and have considered some
of the challenges for the government in each of the presented

  • Width of consultation: one of the challenges for the UK
    The government in the second consultation was far-reaching
    Task of the AHC consultation itself. Both the first consultation
    and the second consultation covered a variety of structures
    and arrangements, including alternative loan funds,
    Securitisations, private equity and real estate investments.
    Creation of a viable AHC regime that is equally effective in all areas
    A variety of asset classes have proven challenging.
  • International comparisons: The UK government has a clear
    Aim in trying to get the status of the UK as a
    global asset management and finance center. That goal would
    well served by creating a popular, workable, and effective
    AHC regime. UK companies could benefit from practical tax breaks
    within an AHC regime, like the ease of being able to demonstrate
    international tax base given the existing UK
    Operations of many financial market participants. Benefits would
    Follow the UK Treasury Department if a popular AHC regime can be created.
    including direct tax benefits from pro-rata taxes and
    the taxation of related employment. However, these are practical
    Benefits can only be achieved if some outstanding challenges can be faced
    away. One of the most important ones is how well the UK AHC regime would do
    Tariff next to international competitors, especially those
    in Ireland and Luxembourg. Is it enough for a British AHC regime?
    offer comparable advantages compared to other UK domestic
    Structures? Or should the AHC regime at least convey that?
    same advantages as other international regimes, or even optimally
    improve its international competitors?
  • Withholding tax: The UK has a 20% withholding tax
    Interest payments on unlisted loan securities. By
    In comparison, Luxembourg does not levy any withholding tax on interest
    Payments for Loans. Any interest payment on unlisted UK debt
    AHC should therefore have a way of eliminating them
    Withholding costs, especially since some are investments in an AHC
    likely made from widely used collective investment vehicles
    where the eligibility of the contract may be difficult to track. Unless a
    A withholding tax exemption for interest payments is in the
    Britain's AHC regime, the international comparison with others
    Regimes would be unfavorable and obvious.
  • Capital Gains and the UK Exemption:
    Capital gains on assets within a UK AHC or AHC
    Group, are a major topic of discussion in the second
    Consultation. While the risk of UK corporate tax liability is on
    Disposal of assets is less likely to be an issue for an alternative
    Loan funds are highly relevant to the possibility of capital gains
    for real estate investments by an AHC. Find a single
    Solution that encompasses all asset classes and does not include a
    disproportionate advantage for AHC investors compared to others
    UK corporate investors have been one of the challenges in the
    Second consultation.
  • Real Estate: Investors usually have to pay taxes on rent
    Income and capital gains from real estate in the UK, even if these
    Investors are based outside of the UK. This tax treatment for
    Non-UK investors in UK commercial real estate have increased in the UK
    Tax law in 2019. One of the questions in the second
    Advice is on whether this should be the basis of UK property taxation
    remain in the AHC regime, and how this tax regime could
    effectively sit next to real estate outside of the UK
    Participations within the AHC regime. A broader question to be addressed in
    the UK Government's ongoing and parallel review of the UK
    A real estate AHC could work in the fund industry
    next to a UK REIT. While REITs and AHCs can support different ones
    Investor base to ensure that these two regimes in a
    Mutually supportive and non-distorting manner is something the
    The government must achieve this.
  • Value Added Tax: For many years, industry associations and tax advisors have
    advocated easing UK VAT rules
    Management fees. VAT reimbursement for administration fees
    The government in the EU has announced that it will encumber a British AHC will
    The second consultation will be taken into account in the broader UK funds
    Review. This is a visible distinction between Ireland and Luxembourg.
    exempt from VAT that are currently certain management fees.
    A change in sales tax rules for administration fees is likely one
    from the bluebells as seen by the AHC consultation of
    Investors and industry participants. In a post-Brexit context
    if international tax competition is not considered optimal,
    Such a change in VAT could be politically difficult to achieve.
  • Investor taxation: The questions as to how investors in a
    UK AHC bear taxes and at what level (with the AHC or with the
    at investor level) are some of the most complicated elements of the
    Second consultation. For example, the government has proposed
    a regime-specific exception for investment capital gains
    the level of the AHC. However, the second consultation
    suggested pinning this exception to a tracing proposal so that
    Amounts returned to AHC investors that are attributable
    Investment capital gains are treated as capital gains in the hands
    of investors. Additional questions arise whether such
    A traceability method would be simple, predictable, workable and
    – perhaps most importantly – attractive compared to
    comparable international regimes. The problem for the British government
    is in the process of creating a regime that enhances the attractiveness of a
    clear exemption, but still fair to the broadest group of
    UK taxpayers using other UK investment structures and levels
    Comparison with international competitors.
  • Legislative Timetable: After all, you might be forgiven
    I wonder if the AHC project timeframe is too ambitious.
    The public consultation took place from December 15, 2020 to February
    23, 2021. Legislation is in place by the UK Government
    Finance Bill 2021, a breathtakingly tight date for consultation
    this complexity and far-reaching effect.

If all the challenges identified in the second consultations can
be resolved on a tax and political level within the UK
There is a possibility that the UK AHC regime could have a government
effective and cheap UK tax system compared to other domestic ones
Investment structures and possibly compelling when placed
next to international competitors. The fascination of watching
The progress of the second consultation is that of the UK
Position in a post-Brexit and post-COVID could die Europe
Suggestion for ambitious reforms. But what is just as uncertain is
is the extent to which other, more well-known fiscal burdens occur
Austerity measures and fears of an erosion of the tax base could speak against it
radical changes.

The content of this article is intended to provide a general overview
Guide to the subject. Expert advice should be sought
about your particular circumstances.


Cayman Economic Substance Deadlines


The Cayman Islands Department of International Tax Cooperation (DITC) issued an opinion on February 8, 2021 reminding industry of the first year submission deadlines for economic substances.

Effects of VAT and Brexit on companies

CSB Group

On January 31, 2020, the United Kingdom (“UK”) officially left the European Union (“EU”) after years of negotiations and uncertainty following the 2016 Brexit referendum.