Ilyas Patel Accountants in Preston
Ilyas Patel Accountants in Preston
The recent increase in Capital Gains Tax (CGT) rates has spurred interest among clients seeking alternative strategies. A noteworthy option gaining traction involves introducing holding companies.
If executed with a strong commercial rationale, this approach can minimise immediate tax liabilities while offering long-term financial and tax efficiency.
Let’s delve into this solution and its implications.
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Dividends paid from a subsidiary to its holding company are often exempt from corporation tax under the dividend exemption rules, provided certain conditions are met.
This allows profits to be retained within the group, enhancing liquidity and reinvestment opportunities without immediate tax liability.
Losses from one group company can often be offset against the profits of another, reducing the overall corporation tax liability for the group.
This is particularly useful for startups or subsidiaries in growth phases that may incur initial losses.
If a holding company disposes of a subsidiary and meets the conditions for SSE (e.g., holding at least 10% of shares for 12 months in the past 6 years), the capital gain may be exempt from tax.
This can result in significant savings on the sale of businesses.
Profits can be extracted from subsidiaries through dividends, allowing the holding company to reinvest in other subsidiaries or ventures without incurring personal tax until funds are drawn.
A holding company can act as a repository for cash or investments, deferring personal tax liabilities until distributions are made to individuals.
Retaining profits in the holding company avoids immediate income tax or dividend tax for shareholders.
A holding company and its subsidiaries can register as a VAT group, simplifying VAT reporting and eliminating VAT charges on intra-group transactions.
This reduces administrative burden and improves cash flow.
A holding company can centralise borrowing for the group. Interest payments may be tax-deductible, reducing taxable profits.
Borrowed funds can be distributed as loans to subsidiaries, potentially increasing tax efficiency across the group.
By structuring business ownership through a holding company, shares can be passed on to heirs with reliefs like Business Property Relief (BPR), reducing the IHT liability on qualifying business assets.
A holding company can facilitate tax-efficient management of foreign subsidiaries, leveraging double taxation treaties and exemptions to minimise tax liabilities.
A holding company simplifies the sale of subsidiaries or specific assets, allowing proceeds to be retained within the group.
Shareholders can also benefit from Business Asset Disposal Relief (BADR) when selling shares in the holding company under qualifying conditions, reducing the CGT rate to 10%.
While holding companies provide tax advantages, compliance and structuring must align with UK tax laws to avoid potential challenges from HMRC, particularly around anti-avoidance measures like the General Anti-Abuse Rule (GAAR).
It’s crucial to consult with a tax advisor to ensure your holding company structure is optimised for your specific needs.
Using a holding company to structure a business sale can provide considerable tax benefits, including deferred personal tax liabilities and asset protection.
However, the long-term implications, particularly regarding IHT, must be carefully managed to protect wealth for future generations.
If you are considering a business sale or exploring tax-efficient strategies for your wealth, now is the time to act.
Consult Ilyas Patel Accountants to ensure you make informed decisions that align with your goals.
Fill out our form here for any questions, give us a call at 01772 920579, or message us on our WhatsApp for out of office hours.
Kind regards,
Ilyas Patel