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Close Investment-Holding Company

Major disadvantages now that CT rates have been alligned?

Client has a holding company which exists purely to hold controlling interests in various qualifying trading companies so it not currently classed as a CIHC.

Client is going into two joint ventures with friends, each of which will result in him owning a 33% of the shares and voting rights.  There will certainly not be a controlling interest no matter which way you look at it as all are investing the same amount, have same rights, etc.

One of these investments is substantial and will outweigh the value of their other investments combined.

The client wishes to hold the shares via the same holidng company and I have advised against this as, by my interpretation of the legislation, the fact that they do not have a controlling interest in these companies and one of these will be worth more than 50% of the entire portfolio (therefore defeating the 'wholly or mainly for the purpose of holding shares in a qualifying company' condition in my opinion ) would instantly make this a CIHC.

One major drawback of this used to be paying tax at main rate but, now that this would seem to be gone, the main issues I can see are the implications on entrepreneur's relief, business property relief, etc.

The client says that they expect to own more than 50% of the company at some stage and are not planning on disposing of any of the shareholdings for many years so they are not worried about these aspects (though I'm sure we've all had many clients talk about things that will/will not happen only for the events to materialise quite suddenly).

I still have reservations but am now struggling to come up with other constructive arguments against holding these new investments in this way.  Is there anything else that I am missing?

The client seems adamant to press on regardless at this point but I obviously want to ensure that they have considered every aspect given it will have such a material change on the staus of the group.

Any/all thoughts would be greatly appreciated.

 

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