Clients often consider the introduction of a new holding company to protect property, cash or other assets from trade risk.
It can be good commercial planning (particularly if your existing company is a standalone) to introduce a new holding company above the existing entity. Providing the steps are carried out correctly, this can be done without crystallising any taxation charges at all.
In uncertain times, it is often a concern that property, cash or other valuable assets may be vulnerable to the risks posed by the trade.
Therefore in these circumstances, the next step would be to transfer any assets that you wish to separate from your trade up to the holding company and then an onward transfer down to a new Special Purpose Vehicle (SPV) subsidiary if you desire – thus keeping them entirely separate from the trading entity. See illustrative example of final position.
In Recent Times
Recently, many clients are also considering the introduction of a holding company structure in order to put cash balances that have accumulated in the trading entity to work. This is particularly poignant at the moment, with inflation being significantly higher than interest rates. Broadly what this means is that the value of cash balances (ie how much you can buy) are reducing at a much quicker rate than the interest that can be earned on them. The value is shrinking over time. Accordingly, business owners are considering using holding company structures to facilitate the movement of this cash into a separate subsidiary in order to utilise the funds to invest in wealth retention assets (ie assets that go up value) such as property.
The New Holding Company
When introducing a new holding company, you are also able to capitalise the full market value of the business at that date. This broadly means that shares can be issued to the existing shareholders up to the market value at that date (whereas previously each shareholder might only have held a £1 share each).
Clearance can be obtained from HMRC in order to ensure the transaction is not challenged at a later date.
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This is a complex area of taxation and really requires a conversation to determine your specific circumstances in order for you to understand the benefits.
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