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?
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.
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 :)
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.
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.)
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 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
PM
Hi David,
My firm may be able to help. See my PM.
Charlie
I have the similar situation with one of my clients. Could you let us have the contact details.