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Benefits Of Setting Up A Holding Company

3rd January 2019

The UK’s business scene has certainly seen a lot of ups and downs of late and with the upheaval of the dreaded B-word (Brexit) many might be feeling a little apprehensive about setting up a holding company in the UK. Some companies such as Spanish operator of Heathrow Airport, Ferrovial, for example are feeling particularly threatened by the proposed changes. But if you’ve been thinking about how to set up a holding company for a while, the UK is actually a very attractive location particularly in terms of the tax benefits that could be seen.

Some of the biggest and most successful companies around the globe are likely to be holding companies, so there is no real reason why yours can’t just be the next big thing.  The benefits of a holding company really can be quite substantial, from being able to better manage legalities to making tax obligations a little easier to stomach. So if you’re thinking about how to set up a holding company but still in need of a little persuasion, here’s some food for thought.

What Is A Holding Company?

There are a number of attributes that help to define a holding company as well, a holding company, take a look at our ‘How to set up a Holding Company’ blog article for a little more information. But at its very simplest, the essence of what makes a holding company that little bit different to the norm is that it owns a fairly large majority of shares in other companies and (according to the Companies Act 2006) typically more than 50% of the voting rights in the subsidiary . In that sense, instead of having activities or operations of its own, the holding company takes a slightly different approach to that of other companies in choosing to own only assets. Unlike many classic business models, you won’t often find a holding company producing goods or services it likes to take on more of a controlling role. The term ‘assets’ can of course mean one of many things that hold any sort of real value, from shares of stock or hedge funds to copyrights and trademarks. The opportunities for someone setting up a holding company in the UK really are endless if done properly.

A Holding Company Or A Parent Company? Does It Matter?

A holding company is sometimes also referred to as a parent company, primarily because of their similarities in definition (both essentially acquire subsidiary companies and take on assets as opposed to running any business activities as such). However despite the apparent lack of significant differences between the two, it might be worth noting that they aren’t quite as inseparable as you might think. A holding company can in general be classified as inactive, that is of course apart from the important job of taking charge of (or holding) the companies it has acquired. A parent company on the other hand will probably have an agenda of its own, with a little more than just taking ownership in mind. This type of operation is more likely to involve the  purchasing or acquiring new companies for the purpose of advancing its own business venture, which is fine, just a little different to a holding company.  
So before going ahead and setting up a holding company maybe just take a moment to think which category it might fall into.

Advantages Of Holding Company In the UK

When thinking about setting up a holding company, the UK really is a rather attractive location for many businesses (local and international), despite any niggling questions around Brexit that the newspapers like to bring us.  When compared to plenty of other countries around the globe, our very own United Kingdom really does have a relatively stable economic, legal and political system in place; an attractive prospect to anyone thinking about how to set up a holding company.

Corporation Tax and Holding Companies

Setting up a holding company in the UK means subjecting it to a relatively low rate of corporation tax, at the moment it is 19% but this is set to drop down to a fairly impressive 17% in 2020. For holding companies with international subsidiaries, the UK exempts any dividends received from these subsidiaries from corporation tax, which could potentially save the holding company owners a fair amount of money in the long run.

Capital Gains Tax

It might just be that a holding company decides to sell or ‘dispose of’ one or many of the subsidiaries it holds, maybe circumstances have changed or new business needs have arisen, either way it’s a fairly common occurrence. In this instance, if you’re a holding company in the UK then as long as you meet the Substantial Shareholding Exemption (SSE), it’s unlikely you’ll be paying any capital gains tax. On the subject of capital gains tax, the profits from the sale of any shares in a UK holding company by non-resident shareholders will be exempt, which is great news for holding company owners out there.

It is worth noting however that if you are a property investment company you’ll likely be subject to anti-avoidance rules known as CFC or Controlled Foreign Company legislation. Worth bearing in mind as it might mean that all things tax related are a little different in your case.

Tax Relief

Being a holding company in the UK means you may well be entitled to some fairly extensive reliefs, especially if you are considered an early stage business or if you have any (qualifying) research and development planned.

The impending and somewhat undecided Brexit implications on holding companies in the UK is certainly causing a bit of a stir, but that certainly shouldn’t deter you. There is a plethora of information available on the benefits of setting up a holding company in the UK and the tax advantages that come with it, for more specific information on tax treaties please the GOV.UK website. If you’re thinking about how to set up a holding company but not entirely confident in your knowledge on the subject, the helpful highly experienced team at PNG Formations are here to provide specialist guidance where its needed. If you’re ready to set up a holding company and have all of the information required to do so, then our team will send your application off to Companies House, taking the pressure off you and your team. Maybe you’re looking to get your new business up and running with as little stress as possible; purchasing one of our company formation packages will guide you through the process of setting up a new business and could be just what you’re looking for. Contact the team today for more information on how to get your holding company dream off the ground.

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