Are you expanding your care home group?

A group structure is created when one or more other companies are owned (directly or indirectly) by a single parent (holding) company.  As a result, all of the companies in the group are under the ultimate control and ownership of the holding company.

The alternative is to form separate standalone companies.

What are the advantages of a Group structure?

1.   Protection or ring-fencing of assets (and liabilities)

You may wish to have each home within a separate limited company – this may be sensible from a risk perspective, for example, if you bought a home with a poor regulatory record you may want to keep it separate from the other homes within the Group, even if it is only until you have rectified any issues.  There are unlikely to be tax implications of transferring assets within Group companies so you could transfer it to another company within the Group at a later date.

2.   CQC/OFSTED

If a number of care businesses (perhaps of the same care type, or geographically placed) are within the same company, compared to all business operations being within one company, it minimises the risk from a negative regulatory rating.

3.   Shared Services

Consider whether certain services such as HR, IT, finance function can be shared across the group to create cost saving efficiencies or will they be governed separately by each operational subsidiary?

Consider how a growing care home group can benefit from a stronger buying power to create opportunities for operational cost savings. 

4.   Profit Distribution

Consider how profits will be distributed within the group, including dividend policies to the parent/holding company and out to shareholders as part of their remuneration planning.

5.   Tax advantages upon disposal

Subject to certain conditions being met, selling a trading subsidiary should qualify for Substantial Shareholders Exemption (SSE) which means that the disposal could result in Nil tax payable by the Holding company.  If the company being sold was a stand-alone company with individuals as shareholders, it is probable that the lowest rate of tax payable on the disposal would be 10%.  This is an area that may be re-visited in the Budget on 30 October 2024.

6.   Other tax advantages

Subject to certain conditions being met, companies that are members of a Group benefit from tax exemptions and reliefs in relation to transactions between Group members.  For example, certain tax losses and reliefs can be utilised across the group rather than just within the company in which they arise.  Other examples include the ability to transfer assets between companies without any capital gains tax or stamp duty land tax.

Case Study

Giving due consideration at the outset to a company structure that can evolve with your growth vision as well as your future business exit is an important part of your conversation with a specialist care sector accountant.

A common scenario is when a care home owner speaks to Hazlewoods when they are seeking to divest a care home from an existing group, and their current advisor has not been able to assist:

In this scenario the care provider has the freeholds and trades of say 3 care homes in one limited company but wanting to sell just one of them.  In this case they cannot sell the shares of the company since they are continuing to trade from the other two care homes.

Consequently, the care home vendor could have a potentially higher tax bill on the sale of the one care home since they are selling the assets of the business, being the freehold property and the trading goodwill.  Alternatively, the vendor could be looking at an expensive demerger exercise in order to separate out the care homes into different companies.  In addition to any cost consequence an Asset sale will also impact the Buyer who must obtain a new regulatory registration which takes time to put into place.

A more strategic approach from the outset can lead to advisory and tax savings!

The above being said, some operators do prefer a non-Group structure i.e.  separate stand-alone limited companies.  The rationale for that may be to remain out of the audit regime for as long as possible, to provide greater flexibility over banking arrangements, or to create less visibility over their overall business interests.