- What exactly is a holding company
also known as a parent company.
Now you've probably heard all red house
some of the bigger organizations,
such as Facebook
and Google are structured
with unused holding companies to their advantage.
And perhaps you are wondering can I do this
for my business here in the UK?
In this video,
we will cover what exactly is a holding all parent company,
three ways a holding company
could benefit your small business.
And finally,
what is the tax position of a holding company
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A holding company in accordance
with the company's act of 2006,
section one, one five nine can be described
and defined as follows.
Number one, it holds a majority
of the voting rights in the undertaking
also known as a subsidiary.
Number two is a member of the subsidiary
and has the right to appoint
or remove a majority of its board of directors.
And number three, it has the right to exercise
a dominant influence over the undertaken either subsidiary.
Now this is all very technical speak.
So what does this actually mean
in simple English?
Let's illustrate with an example
you have a limited company called Happy limited
that trades in goods and services
and earns revenue from its trading activities.
The present structure is
that you personally own a hundred percent
of the share capital of Happy limited
and you are also the sole director of the company.
All nice and simple.
So far now you've been advised
for reasons we will cover later on
in the video to create a holding company
or a parent company for Happy limited
therefore Happy holdings limited has been created
to hold a hundred percent
of the shares in Happy limited
and it has become the parent company
and Happy limited has become
what is known as a subsidiary company.
You as an individual will still be a director
of Happy limited,
but the difference now is
that your shareholding will be in Happy holdings limited.
In this example,
let's say it's a hundred percent.
You would also be a director of Happy holdings, limited
and could even appoint another director
or a non-executive director
to create a board of directors.
Happy holdings, limited satisfies the definitions
of the companies act 2006 listed earlier
and it holds a hundred percent of Happy, limited.
And assuming the shares have full voting rights
effectively exercises control over Happy limited.
Now this example is quite a simple one
for explanation purposes,
but in reality there could be different variations
of shareholdings voting rights
and other permutations depending
on your circumstances and objectives.
So we always recommend you seek professional advice here.
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So the key question is why would you create
and have a holding company for your business?
What are the potential benefits?
Both tax and non tax wise?
Here are just three
of many ways you could materially benefit
from having a UK holding company.
Number one is a safeguarding of assets
with a tangible intangible
or even surplus cash.
Now this is a big one
and whilst it's not directly a tax benefit
it could prove crucial
if you're trading limited company business falls
into difficulty and perhaps becomes insolvent by separating
out key assets, such as your website, customer databases
and any other tangible or intangible assets.
These could be saved from the clutches of insolvency
and reverting to the crown in many of today's businesses
intellectual properties becoming a key asset.
And that is something you will really want to protect.
Number two is the acquisition
and disposal of shares of other companies and businesses.
If part of your business growth strategy
is to acquire whether in hold
or part existing businesses that align
with your target market product services
or overall strategy then using
a holding company structure,
can you benefits?
This is also applicable if you wanted to buy
or own non UK based companies shares or assets.
And number three,
a holding company structure has certain tax breaks
and advanced years.
Now these are elaborated upon in the next section.
A holding company itself is quite often just
another limited company entity.
One of the key ways a holding company generates
incoming funds is by way of dividends
from its subsidiaries.
And these dividends are not subject
to corporation tax in the holding company.
They are an exempt income, and what's more
if you have a UK holding company
and a non UK based subsidiary trading company,
subject to certain conditions,
even foreign received dividends
to the UK company can potentially be exempt
from corporation tax.
Secondly, there is what is known
as the substantial shareholder exemption on a disposal
of shares by a holding company relating
to capital gains tax in simple language.
If you're holding company sold,
say all of the shares
in a subsidiary trading company it held
for let's say 1 million pounds
and made a capital gain of this amount.
It would be exempt from corporation tax
in the holding company subject to satisfying the rules
and conditions of the substantial shareholder exemption.
In comparison, if you were to dispose
of the same shares personally
and made the same amount of capital gains,
you could potentially be subject
to capital gains tax of up to 20%.
If you think that your business could benefit
from a holding company structure
and you're not sure where to start then head to the link
in the description box below to get some information
on how you can get started with this.
I hope this video has helped you gain more
of an understanding
of a holding company and some of its benefits
and taking you one step closer
to knowing your numbers
as always let me know in the comments,
your thoughts on today's video,
or if there are any topics you'd
like us to cover in the future.
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to get our content out there.
This is Tony Dhanjal
for the accounting and tax Academy.
Thanks for tuning in.
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