Do you have trade and property or substantial cash in the same company?
Many business owners do not realise the inherent commercial risk associated with holding the trading arm of their business and any property (and other valuable assets) the company owns under one company. It is advisable to separate trade and property ownership to protect the value of the property from any future uninsured liability arising in the trade.
There are also many other advantages, but each scenario has to be considered on its own merit. The restructuring of the business is typically managed by creating a group company structure.
How does a group structure benefit a company?
The main reasons for having a group company structure are:
- To protect valuable assets – legal separation of the trading business and property away from any future uninsured liability arising in the trade or risk of a downturn in trade;
- Assets can be transferred between group companies free of tax implications;
- Organisational reasons – centralised management, managing different risks and different growth levels;
- Thinking ahead – in future you may not want to sell parts of the business, but not others, early separation and forward planning could make this considerably easier. The group company structure will also help with the succession planning if you want to pass your wealth to future generations.
There also planning opportunities around a group structure:
- Corporate pension contributions;
- Extracting dividends more efficiently;
- Rewarding key employees in one company without affecting other companies;
- Debentures (providing further protection).
There are certain rules that have to be followed when establishing a holding company in the UK. We would always advise applying for clearance with HMRC for certainty. This clearance will provide assurance from HMRC that they are happy that nothing stops the share for share exchange treatment (meaning that no capital gain arises) from applying and some anti-avoidance rules called the ‘transaction in securities’ legislation does not apply therefore avoiding any unwanted income tax charges.
How can we help?
Here at RRL we have a Tax Team of experienced individuals dealing with business restructures (structuring of Holding Companies) and we are advising clients in the most appropriate and effective way of taking into consideration their goals. This allows them to minimise the cost, enhance value and improve their position for the future ahead.
This publication has been prepared by Robinson Reed Layton LLP. It is to be treated as a general guide only and is not intended to be a comprehensive statement of the law or represent specific tax advice. No liability is accepted for the opinions it contains, or for any errors or omissions. All rights reserved.