What is a Holding Company?

You’ve probably heard or read how some of the bigger organisations, such as facebook and google are structured with and use 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'll explain what is a holding company, how it works in a simplistic sense and how you could use one to your advantage regardless of the size of your business.

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⏱️ Time Stamps:
0:44 - What is a holding company / parent company?
3:10 - 3 ways using a holding company could benefit your business
4:34 - The tax position of a holding company

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Now, we've included the official definition of a holding company in our video but, spoiler alert, it's rather technical and wordy. In simple English, a holding company (also known as a parent company) is a separate legal entity that becomes a majority shareholder (hence exercises control) of your limited company, so it becomes a subsidiary of the parent/holding company.

The benefits of using a holding company include:

1) The safeguarding of assets, whether tangible, intangible or even surplus cash. Now this is a big one, and whilst its not directly a tax benefit, it could prove crucial if your trading limited company business falls into difficulty and perhaps becomes insolvent.

2) Acquisition and disposal of shares of other companies/businesses. If part of your business growth strategy is to acquire, whether in whole or part, existing businesses that align with your target market, products, services or overall strategy, then using a holding company structure can yield benefits

3) A holding company structure has certain tax breaks and advantages. For example, if you were to dispose of all of the assets of a subsidiary for say, £1M, you could take advantage of the substantial shareholder exemption, meaning your parent company would not pay any corporation tax (the equivalent of capital gains tax) on this amount. In comparison, if you were to personally make this capital gain, you could be subject to capital gains tax, as much as 20%. as of capital gains tax rates in 2021.

We hope this video has given you a better understanding of a parent company and taken you one step closer to knowing your numbers. Be sure to like and subscribe for more real quality advice from real qualified accountants!

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Видео What is a Holding Company? канала Accounting and Tax Academy by Tony D