Tax Savings Ideas – Idea No. 4 - Companies holding too much cash – consider separation
Each week we are sharing a series of tax saving ideas that are relevant to entrepreneurs, family businesses and owner-managed businesses.
Our fourth tax saving idea in the series is:
Companies holding too much cash – consider separation
Tax legislation favours shares held in trading companies over investment companies. As such, shares in companies holding excess cash may not qualify for Business Asset Disposal Relief – formerly Entrepreneurs’ Relief (which gives a 10% CGT rate on a sale) or Business Property Relief (which exempts the value of shares in trading companies from IHT), particularly if that cash is used for investment purposes. It can therefore be desirable to separate investment and trading activities to preserve and optimise these reliefs. Techniques can include demergers or changes in shares to allow the transfer of excess cash to separate investment companies. This can lead to better investment returns, ringfencing of investment assets and the creation of an investment pot to fund new business ventures or family wealth planning.
As always, the key to successful tax planning is to seek advice as early as possible.
If you would like more information or would like to discuss your tax affairs in more detail please contact: