Inserting a Holding Company to Create a Clean and Future Ready Group Structure

Our client operated three separate companies, each carrying out a distinct commercial function. Although the businesses had grown independently, they had been run in a coordinated way for several years. The ownership of the company was split between spouses in varying proportions. With the exception of one of the companies who had a minority shareholder at 5%. Since the pandemic, the companies had operated one payroll, with intercompany invoicing used to allocate work done. This arrangement had been adopted out of necessity, but over time it began to create inefficiencies. One company was effectively running payroll and invoicing the others, which skewed turnover figures and made it difficult to present a clear financial picture. The shareholder recognised that the structure no longer reflected how the businesses were being managed and that a more formal arrangement was needed.

The group had enjoyed a positive period over the last five years, but more recently performance had become mixed. One company had seen a drop in online sales since August, in line with wider market conditions. Another had experienced strong sales over the last 12 months and was planning to increase the size of its showroom and add facilities to enhance the customer experience. A third company had faced challenges as suppliers began competing directly, prompting investment in new tooling to stay up to date with new products and trends. Despite these fluctuations, the overall outlook remained positive. The shareholder wanted a structure that supported continued growth, protected the trading companies and allowed the group to diversify.

Over the last year, the shareholder had been exploring the purchase of a neighbouring business. This business sat next door and complemented the existing operations well. The acquisition had been expected to complete before the restructuring, but delays on the seller’s side meant the opportunity was still pending. The shareholder had also looked at other potential acquisitions, as several business owners in the sector were considering retirement. The existing structure made it difficult to bring new companies into the group cleanly or to protect the existing ones from risk. A holding company would allow new businesses to be added easily, use the strength of the group, and protect the individual companies.

The shareholder was also looking ahead to long-term planning. They wanted to protect the trading companies in the future, purchase and start other companies as a way of spreading risk and explore ways to support a future transfer to family. They also wanted the flexibility to reinvest profits from the existing companies into new ventures. A holding company offered a practical way to achieve all of these objectives.

After taking advice, the decision was made to insert a new holding company above the three trading companies. Before this could happen, the share capital of each company needed to be standardised. The companies had been incorporated at different times and with different numbers of shares, which would have made the share for share exchange unnecessarily complicated. To resolve this, each company increased its share capital to 100 shares. The shares were then reclassified into separate classes to reflect the existing ownership proportions. This ensured that each shareholder retained the same economic and voting rights they held before the restructure.

Once this preparatory work was complete, a new holding company (“HoldCo”) was incorporated. HoldCo was established solely for the purpose of becoming the parent company of the group. It acquired all of the shares in Company A, all of the shares in Company B and 95% of the shares in Company C. The consideration for each acquisition was satisfied by issuing new shares in HoldCo with the same rights as the shares previously held in the trading companies. Because the transaction was structured as a share for share exchange, no Capital Gains Tax (CGT) was triggered. The shareholders’ base cost in their original shares simply transferred to their new shares in HoldCo.

However, the acquisition of Company C introduced a complication. Because Company C had a minority shareholder, the shareholdings in HoldCo could not be a perfect mirror image of the original structure. As a result, full stamp duty relief was not available for this part of the transaction, unlike the other parts of the restructuring. Stamp duty would be payable on the value of the shares transferred to HoldCo, and that value had to be determined as at the exact date of the transaction.

To calculate the correct liability, we needed accurate financial information for Company C. This included up to date accounts, a reliable profit and loss position and a balance sheet that reflected the company’s true financial state. When the client provided the accounts, it quickly became apparent that they contained significant errors. Key balances did not reconcile and the figures could not be relied upon for valuation purposes. Because stamp duty is calculated on market value, and because HMRC expects valuations to be supported by accurate financial information, we could not proceed.

We informed the client immediately and requested corrected accounts. The accountants re-prepared the financial statements, ensuring that the figures all aligned. Only once the corrected accounts were available could we perform a defensible valuation and calculate the stamp duty due. Although this caused a delay, it protected the client from potential penalties and ensured that the transaction could withstand HMRC scrutiny.

To secure certainty on the tax treatment, we submitted a clearance application to HMRC under s138 TCGA 1992, s701 ITA 2007 and s748 CTA 2010. HMRC confirmed that the restructure was being undertaken for genuine commercial reasons and not for tax avoidance. With clearance granted, the share for share exchange proceeded, and HoldCo became the parent company of all three trading entities.

Following the restructuring, we submitted the transfer instruments to HMRC for adjudication, after which HMRC issued an authentication code confirming the stamp duty position. The adjudication process was lengthy and required a fair amount of supporting documentation. Because the company’s statutory records were in good order and updated as the transaction progressed, we were able to collate the necessary documents promptly and progress the adjudication efficiently.

The completed structure now reflects the way the businesses operate in practice. It provides a single point of oversight, a clear hierarchy and a platform for future acquisitions. It also offers better protection of assets, improved tax planning opportunities and a more coherent framework for long-term growth. The shareholder now has a structure that is cleaner, more efficient and far better suited to the group’s ambitions.