2.8.2022 | Tax

What is a holding company and how can businesses benefit from using them?

Lots to think about when considering a holding company. When would I need one? What could it do for my business?

Head of taxation at Beatons, Andrew Diver gives an overview of the reasons to have a holding company and the benefits they can bring.

What is a holding company?
In general terms, there are two types of business; a trading business and a holding company. The holding company does not generally sell goods or services to outside businesses. It will hold assets, whether property, shares in subsidiaries, intellectual property or cash reserves.

Why have a holding company?
There are many advantages of having a holding company, here we break down some of the main benefits.

To provide protection from commercial risks.
A company will generally have insurance to protect against some commercial risks, however some risks cannot be insured against and historic profits can be at risk if a claim is made against the business, whether from a customer, supplier, employee or HMRC.

If profits and assets are transferred to a holding company it may be possible to shelter these from critical unforeseen events that impact the trading business.

Examples of where this is useful might be construction and engineering or freight and shipping.

Inter-group dividends.
Where a holding company owns shares in a trading company, dividends paid between the companies are free of corporation tax enabling easy transition of funds from subsidiary to holding company.

Help to issue shares to employees.
If a company is to issue shares to its employees, the value of the shares is based upon the worth of the company including the assets the company has. This would include any cash or property the company holds. A holding company may enable issue of shares to employees in the separate trading activities, but excluding historic cash earnings or property assets.

Enable corporation tax group relief to be available.
When companies are in a corporation tax group, they are able to claim a number of corporation tax reliefs. Assets can transfer between companies without capital gains arising and where one company endures a loss this can be surrendered to other group companies. This is most easily available through a holding company structure.

Ease of selling part or whole of the business.
A holding company may be useful when selling whole or part of a business. If the trading business was operated from a single limited company and part of the business was to be sold this could give rise to corporation tax on the disposal of assets. However, where a separate limited company containing the business assets is sold, as long as it fulfils certain criteria it will be eligible for substantial shareholdings exemption and no tax will effectively be charged. This enables the net proceeds of sale to be reinvested into the remaining business without adverse tax consequences.

If you would like to know more about how a holding company could provide tax benefits and flexibility, please contact Beatons for assistance via emailĀ info@beatons.co.uk or call 01473 659777.

Is a holding company for you?