I have a client who has a holding company that owns two qualifying trading subs. He owns 100% of holding company and when the subs are sold in years to come (as is his exit strategy) Holding company will qualify for ER as it holds the qualifying subs - we are happy with those rules.
However, subs are very profitable and he wants to take additional dividends out of the subs each year and store the cash in the holding company - mainly for asset protection - however my fear is cashpiling reserves in the holding company might taint the ER in years to come on the holding company shares
HMRC guidance (CG64060) seems to indicate if the cash is investeed in short term deposits it might be OK however my interpretation of this is that a company that itself has profits/cash, retains them in the company itself is what HMRC are referring to here. So transferring excess cash to the holding company would (to my mind) probably do more than taint the holding company ER by actually changing the holding company's major activity to being not that of a holding company but an investment company.
I would be grateful if anyone can point me to any precedent/legislation or provide thoughts as to whether moving cash into the holding company will be an issue.
(For the record subs both turnover £2m and generate £200k profit pa each, holding co at present is just that, it receives dividends and pays out equal dividends to teh sahreholder, we are talking about moving £500k - £1m to the holding co over the next 3/4 years)