What is a Holding Company – Benefits

What is a holding company and should I consider it as a potential structure?

Not every business structure is as appropriate as the next, and the best option to choose will depend on your own individual circumstances – so what is a holding company, and is this an option you should consider?

You might be just starting out, or may already have stepped-up from self-employed status to a limited company. As your company evolves, it’s important to review your business structure to see that it best serves your interests, such as protecting your valuable assets, providing access to tax reliefs and allowing smooth transition of ownership.

What are the potential benefits of a holding company and group structure?

A group structure creates a holding company. This isn’t necessarily a trading company, but rather a parent company which is incorporated to own the shares in a group of companies which are referred to as subsidiaries. The holding company owns a controlling share in any subsidiaries, and is able to receive dividends from those shareholdings.

There are various benefits to inserting a holding company that are worth exploring with your chartered tax advisor, such as:

• Ring fencing valuable assets and cash
• Using subsidiaries to expand into new markets without risking your established trade
• Eligibility for the Substantial Shareholding Exemption (SSE) tax relief on future share sales if conditions are met

One of the key benefits of a holding company is that it can be achieved tax-free, and you can apply for advance clearance from HMRC to give certainty on this. This mitigates the risk of an unexpected tax bill by providing clarity on the tax position before you go ahead with the transaction.

What are the benefits of creating subsidiaries?

• Mitigate risk by ringfencing assets with subsidiaries: As a limited company, you’ve already ring fenced and protected your personal assets, but as the business grows, you need to think about your company’s assets too. If you’re branching out into new services, industries or even countries, you might want to consider separating out the different aspects of your business to spread your risk. This is especially true if you’re planning on entering a market that comes with much higher risk and/or much higher asset investment.This is where having more than one company (under a holding company) can be of great benefit – enabling you to keep your assets separate. Then, if one company struggles or faces legal action, only its assets are at risk, while the other elements of your operations are protected. This can apply to both physical assets and intellectual property too.
• Simplify business performance tracking: Expanding your organisation by forming subsidiaries can allow you to track the performance of each subsidiary in a manner that would not be available if you were operating one company.
• Simplify the sale of your business, and potentially raise its value: When the time comes, a group structure may make the process of selling your business easier as you can consider selling just one subsidiary at a time. You may also attract a higher price by selling subsidiaries separately.

Other business structures and reliefs

Of course a group structure isn’t the solution for every organisation. The commercial and tax benefits can be complex to navigate and put into context, so it’s worth speaking to a chartered accountant to see what other options you have.

An advisor will take a tailored approach, also ensuring that the availability of other tax reliefs, such as Business Asset Disposal Relief (BADR) and Business Property Relief (BPR) are considered when looking at your business structure.

If you’d like to speak to a chartered accountant or a chartered tax advisor about setting up a holding company or any other matter, please contact our team for an informal chat.