A holding company is a separate legal entity from a limited company. Typically a holding company does not engage in day to day trading activities, but instead holds shares in subsidiary companies which is generally the trading company.
By holding shares in subsidiary companies, a holding company helps protect assets, manage risks, and improve business efficiency.
Why should I insert a Holding Company?
The two main advantages of a holding company are asset protection and tax efficiency.
Asset Protection
A holding company can help you protect key assets such as property, cash, or intellectual property, by moving them out of the trading company and into the holding company. This separates them from the risks that come with everyday trading, offering a greater level of security.
Tax Efficiency
There are several tax benefits to using a holding company structure, such as:
- Dividend exemption: dividends paid from the subsidiary to the holding company are usually exempt from corporation tax in both companies.
- Substantial shareholding exemption if the holding company sells shares in the trading company, the gain may be exempt from tax under SSE rules.
- Group relief: losses in one company can potentially be relieved against the trading profits of another.
- Consolidation: If you have multiple trading companies, a holding company can help bring them under one umbrella, simplifying management and planning.
When set up properly, adding a holding company to your business structure doesn’t usually trigger immediate tax charges. However, depending on how the shares are transferred, you might need to consider stamp duty—though in many cases, this can be managed with the right advice.
As always, it’s important to make sure that this kind of structure fits your goals and future plans before going ahead.
Why Stratos?
At Stratos, we take the time to get to know you and your business before recommending the right corporate structure and tax approach. Our goal is to make sure you fully understand the steps involved, along with the practical and tax implications — so you can move forward with clarity and confidence, knowing everything is being handled the right way.
We provide expert guidance through the process of establishing and inserting a holding company into the group structure. We will explain each step in detail, ensuring you fully understand the legal and financial implications. From the transfer of shares to the establishment of the holding company, we’ll walk you through the process and recommend the most tax-efficient strategies to suit your business needs. Our team is here to ensure that you make informed decisions at every stage.
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Case Study
Optimising Tax and Asset Protection Through a New Group Company Structure
The Challenge
The director and shareholder of two successful trading companies wanted to invest the profits from these companies into a separate, wholly owned property investment company. The aim was to do so in a tax-efficient way, while also benefiting from grouping the companies together for greater operational efficiency.
The Solution
We recommended the creation of a holding company to establish a group structure. This would allow the client to transfer funds from the trading companies to the investment company in a tax-neutral manner, while also shielding the investment company from the risks associated with the trading operations.
Before proceeding with such a transaction, we advised obtaining clearance from HMRC to ensure the transfer wouldn’t be subject to tax. Following this we prepared detailed tax advice to ensure the client was fully aware of the tax implications and worked with the lawyers to ensure everything was implemented correctly.
The Value
The client agreed with our proposal, and we successfully secured HMRC clearance. The new structure now enables the client to easily and tax-efficiently transfer profits from the trading companies to the investment company, while effectively protecting the investment company from the risks of the trading operations.
FAQs
Setting up a holding company is a relatively straightforward process, using the tax reliefs provided by HMRC at TCGA 1992 s135 and offers an effective way to protect your business’s fixed capital and assets. Stratos can walk you through the entire process, detailing the necessary steps and advising on the most efficient way to protect your business and reduce potential risks.
If you’re planning to insert a holding company to acquire shares in an already incorporated limited company, it is recommended that you contact HMRC for clearance before proceeding to confirm that the tax implications are as expected (i.e. there should not be any!).
While this process is generally tax-efficient, HMRC must be satisfied that it is being carried out for genuine commercial reasons, not for tax avoidance. At Stratos, we have years of experience successfully securing clearance from HMRC, allowing your business to move forward with confidence and without the risk of complications.
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