What are the tax benefits of a Holding Company?

Having a Holding Company comes with several strategic benefits, including protecting assets in the event of a downturn in trade or legal claims against the company. But what tax benefits do Holding Companies provide?

A Holding Company structure can enable notable tax benefits and reliefs, especially for moving assets and Inheritance Tax Relief. Here are just a few below: 

Tax reliefs for subsidiaries of a holding company

Subsidiary companies owned by a Holding Company can pass assets between them tax-free. This enables a subsidiary to easily move assets when required, whether for operational efficiency or a strategic reallocation.

For example, if one subsidiary has excess equipment that another subsidiary could utilise better, the assets can be transferred without incurring any tax liability. This flexibility streamlines operations and optimises resource allocation within the group.

Surrendering tax losses

Subsidiary businesses in a group structure can also surrender tax losses to profit-making group companies. This means that if one subsidiary is experiencing a loss while another is generating a profit, the loss can be offset against the profit. This intra-group relief enables the profit-making companies to reduce their tax liability.

Substantial Shareholding Exemption (SSE)

A holding company structure could allow a trading subsidiary business to be sold tax-free. If the Holding Company has owned at least 10% of a subsidiary company’s shares for 12+ consecutive months, these shares can be disposed of without a Corporation Tax liability.

This tax relief is known as the Substantial Shareholding Exemption (SSE). The SSE is particularly beneficial for companies looking to streamline their operations or pivot to new business ventures without a hefty tax bill. he SSE offers immediate tax relief and serves as a strategic tool for long-term business agility and growth.

Inheritance Tax Reliefs (IHT)

Business Property Relief (BPR) effectively reduces the value of assets which are subject to Inheritance Tax on transfer. Usually, a non-trading investment company (i.e., a Holding Company) would not qualify for BPR.

If the holding company is paired with a trading company within a wider group structure, the full value of the group may be relieved from Inheritance Tax, including investments.

Learn more about Holding Companies

Despite the tax benefits listed in this article, that is not the main reason why most holding companies are set up. Below are some key reasons why a holding company could be a smart move:

• By segregating different business operations into separate subsidiaries, the financial risks associated with one subsidiary do not necessarily impact the entire group.
• Assets can be strategically allocated and reallocated within the group to safeguard them from potential creditors or legal claims.
• Shared services within the group, such as HR, IT, and legal services, can lead to considerable cost savings.
• A Holding Company structure offers enhanced strategic flexibility. The ability to buy, sell, or restructure subsidiaries without disrupting the entire business allows for greater agility in responding to market changes or pursuing new opportunities.

If you would like to learn more, our team of experts can guide you through the complexities of setting up a Holding Company, ensuring that it is an appropriate route and that the company is set up without issue.