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Holding Company

Holding Company

We have just taken on a new client that had previously acted for themselves, occasionally taking the advice of a 'family friend' as these people often seem to do.  They have a limited company and earlier this tax year set up a second, dormant company.  They then transferred their shares in the old company to the new company (paper for paper) therefore creating a 'holding company'.  The first company also owned a number of properties which have since been transferred to the new co for market rate with a dividend being voted to pay for them.

On the face of it I would agree that everything they have done so far is technically okay but, as yet, they have not obtained HMRC clearance for any of this.  It is my understanding that clerance should be obtained for all such transactions, is this something I can now do after the event?

The client has also stated quite confidently that as the second company does not trade and merely holds property that it is not associated.  However, i was under the impression that holding assets such as property would make it associated even if no rent were charged and therefore the CT bands would be halved.

Can anybody please clarify these points for me?

Thank you in advance to all who can assist - especially at such a busy time of the year.


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25th Jan 2013 11:49

First things first

HMRC will almost certainly argue that the companies are associated - my own view is that it would take a Tribunal to decide otherwise.

Secondly, going for clearance now wouldn't achieve anything. The whole point of clearance is to allow one to proceed with a transaction in the knowledge that HMRC will not challenge the treatment. The horse has long bolted (or been taken to Tesco?). In any event, s138 is clear in that application should be made in advance of the transaction. You would probably also have wanted to go for clearance in respect of counteraction notices - I haven't checked, but assume that that would also have to be made in advance (and even if not, would achieve nothing at this late stage)

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to tom123
25th Jan 2013 16:37


Thanks for the response which makes a lot of sense.

I am still unclear, however, as to whether or not to alert HMRC as to what has happened or not.  Is the alternative to simply wait until it is challenged and hope that the decision goes in the client's favour?  Is there any particular reason why it could be successfully challenged by HMRC


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25th Jan 2013 12:11

Being a holding company...

... has always been considered by the courts to be the carrying on of a business and the exclusion from being associated only applies if, as you say, the only assets of the holding company are the shares in its subsidiaries and the only transactions are the receipt of dividends from the subsidiaries which are paid out in full to the shareholders of the holding company.

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By blok
25th Jan 2013 12:30


what was the reason for this?

protection of teh freehold from the trade?

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to DMGbus
25th Jan 2013 16:53

Yes, the reason was to protect the freehold from the trade.  The client was taking a lesser role in the business and employing somebody to run it for them.  As there would be a greater risk to the assets due to the fact that the client would not be monitoring everything on a daily basis he wanted to safeguard the assets.

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