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Holding Companies: Benefiting from the UK Tax Regime

Thursday, 4 July 2013

The UK provides an ideal environment for holding companies to seek residence for a number of reasons. A strong rule of law, highly educated and able professionals and London’s reputation as one of the major financial centres are all important factors. A 20% rate of corporation tax rate by 2015 should also help.

In considering the best jurisdiction to establish a holding company for efficiency and effectiveness, the tax regime will often play a decisive role. This is an area that is receiving ever greater focus from policymakers keen to attract more companies to the UK.

Holding companies considering locating their headquarters in the UK should seek expert advice to fully understand the benefits and how to take advantage of them.

The Largest Tax Treaty Network in the World

The UK tax treaty network offers the advantage of reducing the overall tax burden on a company. For a holding company, the highlight is that this can reduce the withholding tax due on payments to and from foreign investments.

Holding companies based in the UK are at a significant additional advantage; not only does it boast one of the largest networks of double tax treaties but it is also a member of the EU. This means companies can benefit from the EU Parent-Subsidiary Directive where withholding tax will be zero on dividends received from subsidiaries in EU countries where the shareholding is more than 10%.

Therefore, most dividends received by UK holding companies will be exempt from withholding taxes and most dividends paid by UK companies will not be subject to UK withholding taxes.

In stemming double taxation through allocation of tax rights via tax exemptions, credits and setting a maximum threshold for withholding tax; the UK holding hopes to persuade holding companies to find a home here.

No Capital Gains Tax on the Disposal of a Subsidiary

In addition to dividend advantages, the ‘substantial shareholding exemption’ means that there is no capital gains tax liability on the disposal of a subsidiary such that the sale of its shares can be made tax free by a holding company.

There are certain qualifying criteria that must be met for this to exemption to apply such as the investing company and the company invested in must be active operating companies within a trading group. Furthermore, investment activity should not be their primary business. However, its application to both UK and foreign holdings makes it attractive for international holding companies.

Controlled Foreign Company Taxation Rules

Although the UK has until recently had stringent rules on the taxation of profits of controlled foreign companies, these have been relaxed to avoid the negative fallout of companies leaving to avoid them. The rules were aimed at preventing the artificial diversion of profits to low tax jurisdictions but often the entire profits of overseas subsidiaries became subject to UK tax. The changes are designed to ensure that diverted income rather than the total profits is targeted more specifically.


The UK’s broad international tax treaty network combined with recent legislative developments should provide it with a more competitive edge and boost investment into the economy.

To find out more about how your business could benefit, contact James Crichton via e-mail or by telephone on 0207 611 4848.