Maximizing Your Business Profits with an Investment Holding Company (IHC)
Omar Aswat - Chartered Tax Advisor
Founder: ASWATAX / ASWATGlobal. I provide bespoke tax advice and creative solutions for business owners and property landlords! ?? I can also help you set up in the UAE and KSA.
A common problem business owners and their accountants face is how to extract cash from a private trading company with the least exposure to tax.
Keep reading as we have the solution for you.
Caveat to begin with though.
ONLY IF the cash is NOT required by the owner for personal and immediate spending.
Rather, we are thinking a longer time horizon...
Long term personal and family investments must be conducted by the Investment Holding Company. Other terms include Linked Investment Company or Personal Investment Company.
The implementation of an IHC structure is most effective where business owners are planning to start utilising the excess profits and surplus cash within their trading business to explore investment opportunities outside of normal operations.
However, the structure can also be used to ease shareholder tension (commonly where an operation is ran by family members with differing long-term plans) where different income requirements are causing distractions from the day-to-day running of the business.
The structure works well from a dividend tax management perspective too.
So to put into relevance, I heard of a case where a business owner wanted to invest in bricks and mortar.
He extracted a dividend of ￡250k!
Yes ￡250k.
Tax payable on that alone would come close to ￡100,000!
The balance of funds (￡150k) was used to purchase a property.
Now the only way we know of this story (and I interfered at the right moment) is because trade is rapidly growing and more cash is now available for even further investment. I speak to many clients with this 'good problem' they have.
This particular individual has massive plans and we are delighted to be able to assist!
What should have happened at that time (hindsight not good enough in tax therefore I emphasise proactive planning), and what will happen now going forward is we will introduce the IHC and ‘link’ it to the trading business.
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The first property purchased (above) will be sold to the new company - tax implications here although broadly, CGT free as recently purchased. SDLT to consider.
Excess cash will be ‘divveed’ (please propose a better spelling lol) up to Investment HoldCo completely tax free!
These funds can be used to purchase further properties or any other wider investments for that matter. External funding can also be provided directly to the entity which is separate from the trade, therefore preserving tax reliefs and any future obstacles (loans etc) on sale of business.
The new IHC will effectively become the Family Investment Company with careful and detailed planning.
The point of this article however is to propose the IHC idea to business owners and their accountants.
Further benefits include smoother and earlier inheritance tax planning opportunities and retirement or succession planning. Any future sale of the trading business (with the aim to achieve this CGT free) can allow for full sale proceeds to be utilised by the new company.
This route has been tried and tested multiple times and we are seeing an increased interest, particularly due to the immediate dividend tax management available for business owners.
If this is something worth exploring, get in touch with a covering email to:
Please note that this structure is different from a ‘normal’ or standard Holding Company with further, wider benefits.
Due to the myriad of opportunities an IHC can provide, it is essential professional tax advice is taken to ensure such planning is suitable for your personal and business circumstances and subsequently implemented correctly.
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Thrilled to see such insightful discussion here! As Steve Jobs once said, Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. Continue to inspire and innovate with your passions! ?????