Newco owned by other Limited - downside ?

[LondonSW]

Hi all, I posted into Finance section, but more appropriate here…

Hi all,
I have a Limited that I am using to Consult in Risk and Corporate Finance (I am a former Banker).
VAT flat rate (Limited started in Feb/2016).
I own the Consultancy (Limited) personally 100%.
I am now, with an Architect/planner and construction company, setting up a Development Company.
I will own 33% of the Development company, and "dividend policy" would be to distribute dividend fully every year.
I would like to own my 33% with my Consultancy Limited. Any downside?
My understanding is that the Consultancy Limited would receive the Dividend, from the Development company (own 33%), tax free.
Only if/when, the Consultancy Limited, distribute the dividends to me, there will be dividend taxation.
Hence I would use the Consultancy Limited as a Holding/Investment vehicle on that, and have a better control of dividend.
Any issue or downside?
Many thanks who whoever take the time to read and answer - really appreciated.

 

[Clare@ClarityTaxation]

Initial thoughts...

There's the risk that something happens to your consulting company, for example it gets sued, and the shares are company assets that you could therefore lose.

If you want to close down your consulting company you'll need to sell the shares first, after proper valuation. If you sell them to yourself they could be quite expensive later on, assuming the company goes up in value (this has a knock on on your own personal tax position later on due to a higher base cost, so a cashflow issue really).

Think about your exit strategy. If you want to sell out of the new company at any stage you'd have to consider the implications, for example selling shares personally could mean Entrepreneur's Relief and your CGT annual allowance, things not available if a company sells shares. If the shares go up in value these reliefs alone could be considerable.

Get a shareholders agreement in place straight away, it's worth paying for to avoid issues later on. Look into alphabet shares in case you want to be able to pay different dividends on different classes later on.

I'd recommend you sit down with your accountant and ask them to advise based on your whole tax position, they should be able to offer more tailored advice.

 

[LondonSW]

Thank you really appreciated.

I may consider starting an Holding Company (Limited) in order to control 33% of the Developement Limited.

Or could I use the Consultancy Limited, and at a later stage "trasform" the Consultacy into a pure Holding Company in case?

(Consultancy is really myself and a handfull of customers and if Development and Investment take off, I may stop it..).

I see you point about loosing entrepeneur tax relief, but I would like to control the distribution of divident to myself, that is why I would like to interpose another Limited between me and the 33% I would own into the Developement biz, and an Holding Company that I could use for other start-up or Investment may work well.

I will see if my accountant is enought up to speed on the whole, or ad it seems I would need to change him or look for external professional advise.