Passive holdings company with bank account

Passive holdings company with bank account

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Client has a holding company that receives/pays dividends out straight away but they have a bank account to do this which incures bank charges which the sub company has to give money to in order to pay. Would this still be classed as passive as i know the rules says it should have no assets other than shares. I just think its a bit unfair as the client is doing it the proper way with actualy paying the dividends to the holding company and then the holding company paying the dividends to the shareholders.

Just to add further, What abount accountancy charges on the holding company. The company should liable for its running costs as a holding company but again the rules state 'no management expenses are incurred'

Any comments would be appreciated.

Thanks

Replies (13)

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John Toon
By John Toon
23rd Feb 2024 10:32

Not sure what your term passive is trying to mean, but I think you're asking is the company dormant? It isn't.

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Replying to johnt27:
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By Largerdanlife
23rd Feb 2024 10:45

Hi, apologies should of meant 'Non-Trading Holding Companies'

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By richard thomas
23rd Feb 2024 10:56

For what tax purpose is the definition of "non-trading holding company" relevant?

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Replying to richard thomas:
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By Largerdanlife
23rd Feb 2024 11:05

The marginal tax rates being dividend by associated companies. Pre tax profits are around £200,000 so would be affected if the holding company is associated

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By Truthsayer
23rd Feb 2024 11:39

s18F CTA 2010 indeed says 'it has no assets in that period, other than shares in companies which are its 51% subsidiaries' to count as a passive company. The legislation appears nonsensical if read literally, as it is impossible for the holding company to function with literally no other assets. I don't know whether there is any relevant case law on this.

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Replying to Truthsayer:
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By Tax Dragon
23rd Feb 2024 11:47

Do you need to read beyond s18E?

Edit: yes (sorry), but read again when s18F applies.

Edit 2: s18F is possibly the least logical/most badly-written section I've come across. And that's against some serious competition.

Ss6 tries to answer part of the question. But not the "does it make sense" point.

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Replying to Tax Dragon:
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By Tax Dragon
23rd Feb 2024 13:11

If only I was older I'd've known that s18F was lifted straight from the old s26.

Once upon a time it seems legislators thought that just holding shares meant a company was carrying out a business. Cf s105(4)(b) IHTA 1984.

But is that (still) true? Was it ever? Should current legislators rely so heavily on copy and paste?

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Stepurhan
By stepurhan
23rd Feb 2024 13:22

It is not unfair, because it is a result of having the holding company between the trading company and the ultimate shareholders.

If there is only one sub (which is implied in your question) why is there a holding company at all? You'd need advice to do it properly, but it seems getting rid of the holding company would solve the problem.

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By richard thomas
23rd Feb 2024 19:59

Some heavy weather seems be being made of this very reasonable question.

The mischief here is splitting income between more than one company to obtain the lower rate of CT for all, where one company would not obtain it. Rather than relying on subjective factors the legislation now and in the past relies on an objective bright line test – count the number of companies which might be used to facilitate splitting.

It would not be fair, thought the legislature, to include certain companies which could not, by their very nature, be used to facilitate splitting, at least on an unacceptable scale.

Companies which have no trade or business are one category (s 18E(3)). Whether a pure holding company has a business or not is an issue which has troubled the courts since the First World War (in relation to Excess Profits Duty). See Volume 12 of HMSO Tax Cases passim (eg Korean Syndicate Ltd. v CIR).

It is quite possible that a pure holding company (one which has no income but potential dividends from its shareho0ldings) is not carrying on a business, but also quite possible that it is. If it is, then section 18F allows it to escape from being an associated company that counts if its only assets are:

• shares in companies which are its 51% subsidiaries

• assets representing a dividend,

• rights of the company to receive a dividend

and it meets the redistribution condition.

A bank account whose only credits are dividends is not an asset for this purpose as it is an asset (the debt owed by the bank to the company) which represents a dividend.

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Replying to richard thomas:
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By Tax Dragon
23rd Feb 2024 20:35

The very reasonable question arises because of the (imho) very ridiculous legislation that might exist (very reasonably) to prevent avoidance, but which includes some wholly unreasonable bright lines.

Quite apart from the points the OP makes, the redistribution condition seems to me excessively restrictive. 4b. Posit the holding company pays its own companies house charges and distributes the balance of its dividend income, which is its only income, and which comes wholly from its only 100% subsidiary. Condition failed. Isn't it?

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Replying to Tax Dragon:
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By richard thomas
24th Feb 2024 07:39

Possibly, but this has nothing to do with the original question.

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Replying to richard thomas:
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By Tax Dragon
24th Feb 2024 13:19

I changed the specific expense from OP's banking one to a companies house one. Does that change the tax analysis so profoundly?

Even if so, if s18F is meant as a relieving provision, it seems to provide little relief, and that was OP's point (/question) as I understood it.

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Replying to Tax Dragon:
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By richard thomas
24th Feb 2024 19:12

Sorry - my mistake.

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