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Can I set up a holding company to protect my retained profits? I want to use the holding for investments

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JohnLuke

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Jan 14, 2025
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Hi All,

At the moment I have a limited company with over £400k retained profit which was build up over a 6 year period. I am looking to set up a holding company and transfer it since the limited company doesn't require this for operation. There is no debt in the company. I am looking to do this in order to protect this fund in case my main trading limited company ever gets into trouble and investment purpose. So I would like to move the £400 k to the holding company to protect it from risk. The holding company will handle investments etc.

The limited company will continue to trade.

What I would like to know is;

- Can I still claim entrepreneurs’ relief (business asset disposal) when it comes to closing the holding company?
- Can anyone go after the holding company if the main limited company runs into any problem?
-is there any duration for which the holding company would need to remain open? I am concious the Business Asset Disposal Relief will be 18% in 26/27

Thanks,

John
 
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Yeh, for £400k, I would get some specific, qualified advice!
 
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JohnLuke said:
Hi All,

At the moment I have a limited company with over £400k retained profit which was build up over a 6 year period. I am looking to set up a holding company and transfer it since the limited company doesn't require this for operation. There is no debt in the company. I am looking to do this in order to protect this fund in case my main trading limited company ever gets into trouble and investment purpose. So I would like to move the £400 k to the holding company to protect it from risk. The holding company will handle investments etc.

The limited company will continue to trade.

What I would like to know is;

- Can I still claim entrepreneurs’ relief (business asset disposal) when it comes to closing the holding company?
- Can anyone go after the holding company if the main limited company runs into any problem?
-is there any duration for which the holding company would need to remain open? I am concious the Business Asset Disposal Relief will be 18% in 26/27

Thanks,

John
Click to expand...
Hello John

Your company accountant is best placed to answer your query.

If you don't have one, or are looking to change please dm me for a recommendation.
 
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JohnLuke said:
- Can I still claim entrepreneurs’ relief (business asset disposal) when it comes to closing the holding company?
Click to expand...
Depends what the holding company invests the £400k (and subsequent distributions from the existing limited company) in
 
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Thanks all, that's really what I am after is some sound advice. Any suggestions of where to go? I am not trying to get anything for free, I need sound advice from a professional.

My accountant is poor, and we have outgrown his limited services/advice.

If you feel you can support us , please do DM me.

Best

J
 
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Gyumri said:
s423 Insolvency Act
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Thanks , my company is healthy, and is profitable so no problems or forseeable. I want to use the money to invest , but needs to be seperate to trading activity. Doesnt make sense to invest through the trading busienss.
 
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Mark T Jones said:
What I'd do is spend some of that £400K on quality, dedicated tax and financial advice.

In a forum environment these questions always have a hint of 'bloke in the pub' about them....
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Any suggestions of who ? I would like professional advice and happy to pay the going rate.
 
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If one of the purposes is to put assets beyond the reach of potential creditors then you will be caught even your main aim is to simply invest.

It's a very peculiar law and quite draconian and has caught out many people.
 
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Gyumri said:
If one of the purposes is to put assets beyond the reach of potential creditors then you will be caught even your main aim is to simply invest.

It's a very peculiar law and quite draconian and has caught out many people.
Click to expand...
Why do holding companies exist then and orgs use them?
 
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JohnLuke said:
Why do holding companies exist then and orgs use them?
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There are many reasons but the law says that a person or even a subsidiary cannot transfer assets/funds for the purpose of avoiding debts - which was the purpose you stated at the beginning.
 
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You form another company and then do share for share exchange to set up a group structure.

Once set up Dividends are paid up to the holding company which will be tax free income for the holding company.

If the holding company only exist to hold investments then BADR will not be available. It needs to actively trade e.g buys, develops and sells residential properties.
 
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Gyumri said:
There are many reasons but the law says that a person or even a subsidiary cannot transfer assets/funds for the purpose of avoiding debts - which was the purpose you stated at the beginning.
Click to expand...
Apologies, I think you may have misunderstood. We don't have any debts or intend to - business is doing very well. I just thought seperating activity would make sense, and I need to start considering succession/exits.
 
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UK Contractor Accountant said:
If the holding company only exist to hold investments then BADR will not be available. It needs to actively trade e.g buys, develops and sells residential properties.
Click to expand...

That would depend on circumstances. BADR is normally available on the disposal of shares when the company is the holding company of a trading group, and it would appear to be the case in the circumstances described. That relief might well be denied becauses the test for it to be a trading group would be applied to the group as a whole. If the amounts invested or this income produced are too high, then trading status may be lost. Unfortunately there are no hard and fast rules to follow and to quote HMRC's guidance "Whether or not making and holding investments are part of a company’s, or group’s, trading activities is a question of fact that can be determined only by reference to all the relevant circumstances." (Capital Gains Manual CG64060)

Given that there is already £400k available to invest, that could well cause a problem in future. Even excessive univested cash in a business can cause issues. We don't know anything about the trading company but it's something that requires careful consideration. It might be that the holding company can sell the subsidiary without paying CGT and the shareholder doesn't need to sell the holding company but lives off the investment income. If there is no disposal of the holdign company shares, there is no CGT in normal circumstances. As things stand there is no CGT on death (but that might change) and any Inheritance Tax relief for trading companies would be lost. Lots to think about!
 
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UK Contractor Accountant said:
You form another company and then do share for share exchange to set up a group structure.

Once set up Dividends are paid up to the holding company which will be tax free income for the holding company.

If the holding company only exist to hold investments then BADR will not be available. It needs to actively trade e.g buys, develops and sells residential properties.
Click to expand...
Aquiring properties is something we have considered as part of the investment portfolio. Most probably rentals for passive income.
 
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Old thread but I did this a couple of years ago. Moved 300k into a holding company for investment purposes. Got a LEI code for the holding company because the broker would not open a corporate account without it.
 
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louis292 said:
Old thread but I did this a couple of years ago. Moved 300k into a holding company for investment purposes. Got a LEI code for the holding company because the broker would not open a corporate account without it. Used LEI Register UK for mine. Quick and cheap. Also made sure the holding company qualified for Business Asset Disposal Relief by keeping it active for more than two years. It worked out fine. Just my experience.
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Why do you repeatedly refer to LEI as if it is compulsory?
 
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