Eligibility criteria

In order to be eligible as a qualifying QAHC, the QAHC must be UK tax resident (although note, not UK incorporated), and cannot be a UK REIT, and must meet the following additional requirements:

1. the shares in the QAHC must not be listed or traded on a recognised stock exchange,
2. the “ownership condition” is met,
3. the “activity condition” is met, and
4. the QAHC must elect to be a qualifying QAHC.
   
   

Ownership condition

At least 70% of the relevant interests in the QAHC must be held by so-called “category A” investors. Category A investors are one of the following:

• a QAHC
• “qualifying fund”
• relevant “qualifying investor”, or
• a Minister of the Crown.

“Qualifying Fund” is defined as a Fund which is a collective investment scheme or an AIF, that meets the “diversity of ownership condition”, which means:

• if the Fund is a company it must not be a “close company” (very broadly, not under the control of five or fewer people), or
• if the Fund is not a company (but is e.g. a partnership), it satisfies the “genuine diversity of ownership conditions” as defined in a number of sections in the Offshore Funds (Tax) Regulations 2009, and this includes a number of requirements, including that the Manager of the Fund must prepare a statement which specifies the intended categories of investors when the Fund is marketed.

Relevant “qualifying investor” includes any one of the following institutional investors:

• certain pension funds and long-term life assurance business entities,
• sovereign wealth funds that are exempt from UK tax on the grounds of sovereign immunity,
• UK REITs, and
• certain charities

In other words, the QAHC must have at least 70% of its equity interests owned by institutional investors and/or a Fund which satisfies the genuine diversity of ownership conditions.

Activity condition

The activity condition is met if:

• the main activity of the company is investing its funds with the aim of spreading investment risk and giving investors in the company the benefit of the results of the management of its funds, and
• the other activities of the company (if any) are not carried on to any substantial extent.

This means that to a substantial extent, the activities of the QAHC must be limited to investment activities, and not trading activities, albeit that the underlying assets of the Fund may be trading companies, provided that the QAHC itself holds the shares in the trading companies for investment purposes (as is typically the case in Buy-out or VC Funds).

Additional eligibility criteria under consideration

The following eligibility criteria are being considered further by HM Treasury:

• minimum amount of capital raised for investment must be in the region of £50m to £100m, and
• where Funds are required to have a regulated fund manager, the manager must be independent. Crucially, the meaning of “independence” in this context is not yet defined and the independence requirement not yet included in the draft legislation.