A client thinks it may be a good idea to have a holding company, as he owns several companies. However, all are in the UK and all are in the 20% Corporation Tax band.
I have tried researching this but coming up with blanks. Is there any tax advantage to this in this situation?
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Replies (21)
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You don't say why your client thinks it may be a good idea. If you would care to expand someone may be able to comment on whether his idea is well-founded.
The main tax advantage to having a group is that the losses of one can be relieved against the profits of the others.
Yes trading subsidiaries can be sold free of tax but there is a disadvantage in that the proceeds belong to the holding company not the shareholder.
Not necessarily a disadvantage ...
... depending on the shareholder's circumstances and intentions, retaining the tax-free proceeds in the holding company can be a distinct advantage.
Agreed if the shareholder wants to re-invest the proceeds for business purposes. The disadvantage is the loss of opportunity to enjoy the proceeds personally without paying tax to extract them from the holding company.
Basically, someone told him that it was a good idea but the person who said it deals with international companies worth millions. This person has three or four companies, all profitable but all in the 20% band. He is already is set up to extract the most he can dividends wise. At the end of the day my view is that if he owns a holding company that owns say 3 or 4 other companies, all making around £100k a year profit, can he extract any more money tax efficiently that he would if he had one company at £400k profit? We already have this set up so I dont want to get distracted with income extraction, its just the holding company element and if I am missing a trick.
Just one scenario
We had a client that sold 5 companies over a period of about 8 years, realising profits averaging £1.5m on each. He eventually got the cash out without paying a penny in tax. Had the companies been non-grouped he'd have been looking at a tax bill of close on £1m. I believe that he considered the availability of SSE to have been an advantage :)
Superb
Thanks BKD. I am finding it very hard to find anyone who wants to be involved in this locally. Can you PM me with what your charges would be to liaise with me initially for fact finding and the going forward to assist in setting up the correct structure, with us retaining all ongoing and day to day tax issues. Unless of course you want to explain the above on here :)
Not a lot to explain
And nothing particularly sophisticated.
Simple fact is that a wealthy entrepreneur managed to successfully grow a number of businesses.and sold them whilst a UK resident. Wealth was such he didn't need the cash at that time. By the time there was only one trading company (the holding company) left he had emigrated from the UK.
Yes, I know that emigration is considered to be rather extreme tax planning, but just making the point that in the right circumstances SSE can be very useful. Just as, as John points out, in other circumstances it may be of less value.
Group transfers
Another advantage of a group is the ability to transfer assets around without tax cost. This could be useful, for example, to move trading premises to a separate company for commercial protection.
ok, back at square one?
He doesnt own any premises. So is the general consensus that there is little point someone in the UK who is not going to emigrate and is only in the 20% band getting into holding companies?
To be honest, David ...
... I think that out of all of us here only you and your client can answer that question. It really does depend on his circumstances, future plans etc. For instance, one would not have to emigrate to still benefit from SSE (if he didn't need the cash immediately he could leave it until his income levels dropped and extract the cash by way of dividends within basic rate band - that would not have worked in my client's case given his income from other sources, but again just making the point that there is no one-size-fits-all answer to your query.)
Help
I am going round in circles here. I have already said I am not expert on this and I am looking for someone who is. So far in the 'real world' I have found few people who claim to be an expert on this but on speaking to them they knew less than me! I am looking for someone with experience of setting up these structures and who thinks that it is beneficial to someone who will earn around £300k a year in profit and want to take £100k a year to live on. This person is only 35 and so not looking to retire any time soon. We are happy to pay for this advice but it needs to be from someone with a proven track record. We will obviously privately give them all the facts and figures.
I think you first need to establish whether there is anything at all that it would be useful to change structure-wise. You don't need specialist advice on how to implement the right structure if your client already has it. As has been explained above, if the client plans to sell businesses and re-invest the proceeds in new business ventures a group structure may well result in tax savings (because of SSE).
I am trying to establish that. I dont know anything about SSE or this subject which is why I am posting this question on here.
I can advise on this
I am used to advising on inserting holding companies (which are also useful re asset protection re trading subs). See:
https://www.accountingweb.co.uk/anyanswers/question/share-share-exchange-2
ok, we are almost losing the will to live on this. We are au fait with setting up companies, transferring shares setting up dividend structures for extraction. We are not au fait with the advantages, if there are any, of holding companies for people in the UK in the 20% Corp tax bracket who do not own substantial fixed assets. We are not au fait with SSE.
Please can someone let us know if plain English if there is any point going down this road. If people want paying we are happy to do so. We do not want to pay or want to know anything other than this.
I have the similar situation with one of my clients. Could you let us have the contact details.