What are the tax benefits of a Holding Company?

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 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 that's 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 not only streamlines operations but also 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 the burden of a hefty tax bill. The SSE not only offers immediate tax relief but also 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.