A holding company, or ‘parent company’, is set up to own a controlling stake in at least one subsidiary company.
There are several strategic benefits associated with a Holding Company. These include protecting assets in the event of downturn in trade, or legal claims against the company.
But what about tax?
There are notable tax benefits and reliefs that a Holding Company structure enables. In this blog, we will outline some of the most significant.
Tax reliefs for subsidiary businesses
Subsidiary companies owned by a Holding Company can pass assets between them tax free. This enables a subsidiary to easily move assets when required. Businesses in a group structure can also surrender tax losses to profit making group companies. This enables the profit-making companies to reduce tax liability.
Selling the business tax free
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 is the Substantial Shareholding Exemption (SSE). The SSE can be useful if the remaining Holding Company plans to reinvest funds in the next venture.
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 a 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.
Check your eligibility for a Holding Company
The benefits include reduced risk, asset protection, sharing central service and admin functions between different business, and some tax benefits too. We have built a bespoke eligibility tool, which will help you determine whether a Holding Company is right for you and your businesses.
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At Shorts, we regularly advise on of the benefits of creating a group structure via the use of a holding company.
Learn more about Holding Companies
Tax benefits and reliefs are not the only reason why a Holding Company structure may be a smart move.
The Shorts Business Taxes team has a wealth of experience setting up holding companies in a group structure. The result is far more beneficial than a standalone company.
Whether you want to reduce risk, protect assets, spread costs, or reduce your tax liability, a Holding Company is something we recommend. Speak to our team today for advice tailored to your business.
David Robinson
As a Tax Partner, I advise clients on all aspects of UK tax, ranging from business taxes, transactions and private client matters, helping to achieve the objectives and aspirations of businesses and their owners.
View my articlesTags: Business Taxes
