A holding company structure potentially offers significant benefits to business owners. This article sets out some of the key considerations.
What is a Holding Company?
Generally a holding company is a company set up to own the shares of other companies. You may have heard people refer to this as a ‘parent company’.
Many business owners have a limited company which they personally own the shares of. A holding company structure would often involve the holding company owning the shares of that trading company (the subsidiary) and the individual instead owning the shares of the holding company.
What are the benefits of a Holding Company?
Asset Protection – Assets and cash reserves of a trading company are exposed to the risk of any claims or liabilities that the company has. A holding company can potentially ring-fence assets and reduce risk.
Tax Saving (Dividends) – Holding companies can receive dividends tax-free from other UK companies. This enables business owners to release cash reserves from their trading company without having to pay tax on dividends, as would be the case if they were taken personally.
Tax Saving (Share Sales) – The Substantial Shareholding Exemption (SSE) provides an exemption from corporation tax for capital gains and losses realised on the disposal of certain shareholdings. The holding company could potentially sell a subsidiary company and pay no corporation tax.
Efficiency and Cost Saving – In some group structures a holding company enables a function to be undertaken centrally rather than each subsidiary having it’s own in-house team (perhaps a head office with a finance, administration, IT or HR team), the costs can then be recharged. Some business owners operate multiple Limited Companies and take income and dividends from each separately. A holding company could potentially streamline this process.
Why would I not have a Holding Company?
A holding company is not appropriate in all circumstances. For small businesses with few assets it may add unnecessary administration. The best way to find out is to have a conversation with a professional adviser who can consider your circumstances in detail.
How do I set up a Holding Company?
Every case is different but Sapphire Accountants can assist with implementing a share for share exchange process. This involves swapping the shares in your trading company for shares in the new holding company.
Doing this incorrectly can create unwanted tax charges so it is important any reorganisation is properly structured. We always recommend obtaining clearance from HMRC to provide full peace of mind.
Summary
A holding company can be an extremely valuable tool for business owners. If you operate multiple companies, or your trading company has significant assets or cash reserves it should be something you consider.
Author – Ryan Sample ryan@sapphireaccountants.co.uk
Data correct as of 2023/24. This article is intended as an outline guide of the potential benefits of a UK holding company, and not a recommendation that any reader should take action without taking professional advice.