Holding company tax advice

A holding company is a company that owns shares in one or more other companies, called its subsidiaries. Under the Companies Act 2006, a company is another company's holding company if it holds a majority of the voting rights, can appoint or remove a majority of the board, or controls a majority of the votes under an agreement with other members. For owner-managers, it usually means a new company that owns 100% of the existing trading company.

You and any co-shareholders own the holding company, and the holding company owns the trading company. The trading company carries on as before, with the same staff, customers and contracts. When it has surplus profit, it can pay a dividend up to the holding company, normally free of corporation tax. The holding company can then keep that cash safe, invest it, lend it within the group or pay dividends on to you when you choose.

Often very little. Many holding companies simply own shares in their subsidiaries, receive dividends, hold surplus cash or investments and pay dividends to the shareholders. Some do more, such as providing management services, employing the directors, owning the group's property or lending money to subsidiaries. What it does matters for tax, because it affects the associated companies rules, trading status for reliefs and whether it can be treated as a passive holding company.

No, but the percentage matters. Company law treats a company as a subsidiary if the holding company has a majority of its voting rights or controls its board. For tax, 51% matters for associated companies and trading groups, 75% for group relief and capital gains groups, and 10% for the substantial shareholding exemption. Owner-managers usually have the holding company own 100% of each subsidiary, which meets every test and keeps things simple.

Yes. A holding company can own any number of subsidiaries, each running a separate business. That keeps each business's risks, contracts and creditors apart, and lets you sell, close or bring in partners for one without disturbing the others. Within a 75% group, losses in one company can usually be set against profits of another, and assets can move between companies without an immediate tax charge on chargeable gains.

Yes. A holding company can own property itself, or the group can hold property in a separate subsidiary. Many owner-managers prefer a dedicated property company in the group, because it keeps the property apart from both the trade and the holding company's cash. Where property is held matters for tax: substantial investment activity can affect the group's trading status, which matters for Business Asset Disposal Relief, the substantial shareholding exemption and inheritance tax Business Relief.

Yes. A holding company is a separate legal company, so it needs at least one director, its own registered office, its own statutory registers and its own bank account. In owner-managed groups the directors are usually the same people as in the trading company. Keeping the companies' money, decisions and records properly separate matters, because the protection a group gives depends on each company being treated as distinct.

It can, through what is called a hive-down, where the existing company transfers its trade and assets into a new subsidiary and keeps the shares. It is used less often for owner-managers because contracts, employees, licences and property all have to move, which can bring legal work and tax points such as stamp duty land tax on property. Inserting a new holding company above the existing company usually leaves the trading company untouched.

A holding company sits above a trading business and owns its shares, mainly to protect cash, separate risk and plan for a sale or succession. A family investment company is a company owned by family members that holds investments, often funded by the founder, with share classes designed to give the next generation future growth. The two can work together: a family investment company can sit above a holding company or hold investments alongside the trading group.

Usually not, if its subsidiaries trade. Shares in the holding company of a trading group can qualify for Business Asset Disposal Relief, and holding company shares can qualify for inheritance tax Business Relief where the subsidiaries' businesses are trading. A holding company of trading subsidiaries is also not a close investment-holding company, so the small profits rate and marginal relief stay available. The picture changes if the group's investment activities become substantial.

Yes. A holding company can have as many shareholders as the trading company. On a share-for-share exchange, each shareholder normally receives holding company shares in the same proportions and classes as before, which is also a condition for stamp duty relief. Shareholders who want to go their separate ways later, or hold different parts of the business, may need a demerger rather than a simple holding company, so it is worth discussing long-term plans first.

Yes, but unwinding is rarely free. Removing a holding company or splitting a group usually means a demerger, a liquidation or a sale of shares, each with its own tax and legal steps, and some reliefs claimed when the group was formed can be clawed back if companies leave the group within a set period. That is why it is worth setting up the right structure for your long-term plans, rather than one that only solves today's problem.

Start with what you want to achieve: protecting cash, separating property, adding a business, selling, or passing the business on. Then look at the facts that drive the tax, such as profits, surplus cash, who owns the shares, any property and your timescale. Our Structure Lab lets you try different structures, and a Chartered Tax Adviser can test the options against your figures and tell you honestly whether a holding company is worth it.

Several reliefs do most of the work. Dividends from subsidiaries to the holding company are normally exempt from corporation tax. Capital gains groups let assets move between 75% group companies without a gain, and group relief lets losses be shared. The substantial shareholding exemption can exempt gains when a subsidiary is sold. For shareholders, Business Asset Disposal Relief and inheritance tax Business Relief can apply to holding company shares where the group trades.

Yes. A new venture can be set up as a subsidiary of the holding company, with a new partner or key manager taking shares directly in that subsidiary rather than in your main business. That keeps their stake limited to the venture they are helping to build. The holding company's percentage still matters for tax: below 75% the subsidiary leaves the group for group relief and capital gains, and below 51% further rules change.

Yes. Each company in a group is its own legal person, with its own assets, debts, contracts and directors' duties. That separation is what lets a holding company protect cash and property from a subsidiary's creditors, and lets each business be sold or closed on its own. It can be weakened by cross-guarantees, shared bank security or personal guarantees, and by treating group companies as one in practice, so decisions, records and bank accounts should be kept properly separate.

Not directly, because a holding company owns shares and an unincorporated business has none. The business would first need to move into a limited company, and that company can then sit under a holding company. The two steps can often be planned together, but each has its own tax points, including capital gains tax on the business assets and stamp duty land tax on any property. It is worth settling the end structure before the first step is taken.

Yes. UK holding companies often own subsidiaries abroad, for example to trade in another country. Dividends from an overseas subsidiary can be exempt from UK corporation tax, but the conditions differ: for a small holding company, the paying company must be resident in the UK or in a territory with a suitable double tax treaty. Local taxes, withholding tax on dividends and UK rules aimed at profits diverted overseas also need checking before the structure is set up.

Usually simple. The owners hold shares in a holding company, which owns 100% of the trading company. Many groups then add a property company that owns the premises and lets them to the trading company, and sometimes a second trading subsidiary for a new venture or an acquisition. Surplus cash is often held in the holding company itself. Each company files its own accounts, and the whole group is normally run by the same directors.

Yes. Family members can hold shares in the holding company, either from the start, by holding shares in the trading company before the share exchange, or later by gift or subscription. Gifts between spouses or civil partners living together are normally at no gain, no loss for capital gains tax, while gifts to children are treated as made at market value. Different share classes can give family members income or growth while you keep control, but the tax rules on shifting income need care.

Yes. Some owners have separate holding companies for unrelated businesses or different groups of shareholders, and some add a family investment company above a holding company for succession. Each extra company has its own running costs and is normally an associated company for the corporation tax limits if it carries on a business. More layers are only worthwhile where each has a clear job, such as separating shareholders, risks or a future sale.

An LLP can own shares, but it rarely works as a holding company for owner-managers. An LLP is generally transparent for tax, so dividends it receives are taxed on its members rather than being exempt in the way they would be for a company. That removes the main reason for having a holding company. Reliefs such as the substantial shareholding exemption and group relief also depend on company ownership, so a limited company is almost always the right vehicle.

Sometimes. Some regulators treat a new company in the ownership chain as a change of controller, which may need notice or prior approval even though the same people remain in charge. Financial services firms authorised by the FCA are the best-known example, and other sectors with licensing or professional rules can have similar requirements. Check with your regulator or compliance adviser early, because the approval timetable can be longer than HMRC's clearance timetable.

An intermediate holding company is a subsidiary that itself owns other subsidiaries, so it sits in the middle of a group. Larger owner-managed groups sometimes use one to keep a division together, for example a trading company and its own subsidiaries, so the whole division can be sold or financed as one. For the substantial shareholding exemption, the holding company of a trading subgroup can qualify when it is sold, so each subgroup needs to stay clearly trading.

Yes. Once the share exchange completes, the holding company becomes the trading company's sole shareholder, and the trading company's register of people with significant control will normally show the holding company as a registrable relevant legal entity instead of you. You will then appear as a person with significant control on the holding company's record. Anyone searching Companies House can follow the chain, so the ownership remains transparent.

A typical holding company insertion takes 4 to 6 weeks from the first call to the share exchange. The main part of that is HMRC's 30-day window for replying to the clearance application, which is made before any shares are issued. Stamp duty adjudication and the Companies House filings follow the exchange. A group with several companies, property moving or lender consents to obtain can take longer, so start well before any deadline.

With us, it's a single fee for the whole restructure, agreed in writing before any work starts and exclusive of VAT. You can pay in full or over 2 monthly instalments. The fee depends on your structure, so we confirm your exact fee within 1 working day of you telling us about it. There are three packages, Essential, Premium and No Risk, all quoted on request, and the first call is free.