What are the benefits of a holding company?
- It can be used to keep assets separate from trading companies. This could be to protect these assets, which could be cash, investment property or intellectual property, from a downturn in trade or it could be to make it easier for you the sell the main trade whilst retaining ownership of these assets.
- It can be used as a vehicle for purchasing/selling multiple companies, whilst maintaining the cash within the group for further ventures. Generally, there is no tax payable on the sale of subsidiary trading companies.
- Dividends can be passed up to the holding company tax free. This means the cash can be held in the holding company and distributed in a more tax efficient manner whilst it is held away from the risk of the trading companies.
- A group structure can also enable different trades to be ring-fenced in different companies without losing the ability to use any losses across the group, if one or more of the trading entities is loss making whilst others remaining profitable.
- Transfer of assets between group companies can take place without adverse tax consequences.
If you already have an established trading company, setting up a holding company can be done by way of a share for share exchange. This is where you give the new holding company your shares in the trading company in exchange for the same shareholding in the holding company. Prior clearance is required from HMRC before completing this transaction.
Alternatively, the holding company could simply purchase the shares of the trading company, but this will have a tax impact.
As always advice should be sought before undertaking the process of introducing a holding company.
Author: Patrick Hoare, Corporate Services Manager, Plus Accounting
Any views or opinions represented in this blog are personal, belong solely to the blog owner and do not represent those of Plus Accounting. All content provided on this blog is for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site
Date published: 14 March 2023