Many growing businesses start out operating from one sole entity: a single limited company with one or more family members or business partners as shareholders. The owners may have incorporated separate entities to manage different trading businesses or have setup investment companies to hold property or other investments.
In the above scenarios, the shareholders may find that if they restructure their business and investment interests into a single corporate group to be a sensible, risk free step that reduces potential tax charges and protects their assets.
Our clients are frequently approaching us with concerns about accumulated cash reserves or investment properties that have been acquired via their trading company. Their businesses may also often hold Intellectual Property that they have developed or patented.
We can assist bringing together the ownership of the trading company and any other company shares held directly under a single holding company structure. Specific provisions in the tax legislation permit reorganisations in this manner without HMRC deeming the transfers to be a disposal for capital gains tax or an acquisition for stamp duty purpose (subject to conditions)
Following the creation of a corporate group, all subsidiary companies will be owned by a group holding company with the owners holding their shares and ultimate value via this entity.
The benefits of a group structure are as follows;
- Assets can be transferred through the group on a tax neutral basis.
- Intellectual Property can be transferred to a separate entity away from the trading activities to protect it from potential trading and litigation claims.
- Cash reserves from any of the subsidiaries can be transferred tax free up to the group holding company and loaned to other subsidiaries for reinvestment. This is especially beneficial if profits would otherwise be extracted from the trading company personally and subject to dividend tax charges prior to reinvestment in new ventures or investments.
- Sales of a trading subsidiary’s shares by the group holding company can be exempt from the charge to tax, due to the Substantial Shareholding Exemption (SSE). This is subject to various conditions. The proceeds from any future sale of some, or all, of the trading business can be held tax free in the holding company without any capital gains tax charges arising at holding company level. Subsequent extraction of funds can then be staged or mitigated with further planning or reinvested within the group structure.
- The corporate group can potentially qualify for Business Property Relief (BPR), which would reduce the value of the holding company shares in a deceased persons estate by up to 100% for Inheritance Tax purposes.
Contact us if you wish to discuss restructuring your business interests.