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limted company profits

holding company and BADR

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If a trading company restructures itself to become a subsidiary with the parent "holding" company managing the retained profits, with an identical share for share exchange structure, will BADR be protected if profits of the holding company are used as a close investment company whilst the subsidary continues trading?  The reason for forming the parent company was for investing the retained profits and protecting the trading status of the subsidiary company.   Does the entitlement to BADR get affected by this method?

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By David Ex
20th Aug 2021 17:53

In response to your previous post which was quite a straightforward matter, it was suggested that you and your business would benefit from appointing an accountant.

You are now straying into far more complex areas of tax and so I would suggest that it is now imperative that you appoint an accountant/ tax adviser. If your affairs are material enough to require a restructure then best pay a small amount to get it right.

Requests for free advice should always be prefaced by the word “please”, or similar.

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By Wanderer
20th Aug 2021 17:55

Back in February you said you were going to engage an accountant.

Did you do so before you set up this holding company & started transferring the profits to it?

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By jdajames
20th Aug 2021 18:03

yes i did engage an accountant but he did not explain much

hence my request for help...........PLEASE

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Replying to jdajames:
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By Leywood
20th Aug 2021 18:07

Go back to Accountant and ask him to explain it until you understand it.

Or, get an new Accountant.

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Replying to jdajames:
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By Tax Dragon
22nd Aug 2021 06:13

jdajames wrote:

yes i did engage an accountant but he did not explain much

Did you ask him anything?

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paddle steamer
By DJKL
20th Aug 2021 18:17

Once the parent company owns the shares in the sub BADR is of no relevance to the shares in the sub (As the shareholders are not individuals, the shareholder is the parent) and if the parent has a mix of activities ,being both an investor in a trading company (the sub) and general outside investing, the shares in it may well not qualify for BADR.

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64090

There may be relief for the parent (SSE) were it to sell the trading sub at a later date but of course that does not get said funds into the hands of the shareholders of the parent, it merely gets the sale proceeds into the parent possibly with very limited tax cost.

https://www.taxinsider.co.uk/getting-to-know-the-substantial-shareholdin...

Paid advice before doing anything is the only sensible route, anything else is really foolish.

p.s. tax planning does not start with reliefs, what bites etc, good tax planning starts by working out what the client wants to achieve, where the client wants money to flow and why, when the client likely wants things to happen (Is one planning for the now or for later, future wind up, succession etc) and addressing those desires with a tailor made suit.

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By More unearned luck
20th Aug 2021 19:14

So, you will have a group that is partly trading and partly investment. When you refer to 'managing the retained profits' I assume you mean managing the cash representing the retained profits and that the amount of that cash is substantial. Take care as it is the investing of the cash that could put the kibosh on any BADR claim, if the cash and the managing of it to date hasn't already done so.

For BADR the trading status of the trading sub is irrelevant; it is the trading status of the group that matters.

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By jdajames
20th Aug 2021 19:53

thanks "DJKL" and "more unearned luck".

The intention was that the parent company would only be investing the retained cash surplus that the subsidiary had generated. This would become a "large " amount of cash as it would be invested in the stock market for at least 6-8 years. But the parent would not really be trading but just investing. I guess at the end the capital gain from selling the stock will be considerably more than the turnover from the subsidiary at that time.
One accountant said to me that sell the stock at least two years before the plan of winding down but i did not understand whether simply through investing such a large amount would compromise BADR status if this had been done with a single LTD company (that did not have any parent)?

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Replying to jdajames:
paddle steamer
By DJKL
20th Aug 2021 22:06

With a single company you would likely still have the issue of excess assets not used for trading purposes, even if more than two years prior to wind up investments were liquidated back into cash and the company continued trading I still think there might be issues (Whilst HMRC's guidance re 20% of assets for non trade purposes impacting BADR should not be taken as gospel I still think you could have issues)

Work out what you want to achieve then take that brief to a decent size firm of accountants to create a solution.

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By jdajames
20th Aug 2021 19:53

thanks "DJKL" and "more unearned luck".

The intention was that the parent company would only be investing the retained cash surplus that the subsidiary had generated. This would become a "large " amount of cash as it would be invested in the stock market for at least 6-8 years. But the parent would not really be trading but just investing. I guess at the end the capital gain from selling the stock will be considerably more than the turnover from the subsidiary at that time.
One accountant said to me that sell the stock at least two years before the plan of winding down but i did not understand whether simply through investing such a large amount would compromise BADR status if this had been done with a single LTD company (that did not have any parent)?

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