In the UK, there are many different corporate structures, some of which exist to fulfil particular purposes. One example is a holding company, a unique type of business that doesn’t engage in day-to-day activities but instead owns controlling shares in subsidiary companies. 

In this guide, we’ll explore what a holding company is, how it works, the potential benefits and drawbacks, and what you may need to know if you’re considering setting one up.

What is a holding company in the UK?

Definition and legal structure

A holding company, sometimes known as a parent company, is a private limited company normally (but it can be public)  that owns shares in one or more other companies, known as subsidiaries. It may simply hold these shares or can also carry out activities such as providing management services to its subsidiaries.

A wholly owned subsidiary means the holding company owns 100% of the shares, not just more than 50%. More than 50% is simply a subsidiary with a controlling interest.

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What is the relationship between a holding company and subsidiary?

The relationship between a holding company and a subsidiary is defined within section 1159 of the Companies Act 2006. A holding company is considered to be the ‘parent’ when: 

• The holding company owns over 50% of the voting rights in the subsidiary
• It is a member of the subsidiary and can appoint or remove a majority of its directors
• It is a member of the subsidiary and has agreements in place with other shareholders that effectively give it majority voting rights in the subsidiary

Does a holding company have to own 100% of a subsidiary?

No. A holding company does not necessarily need to own 100% of a subsidiary. A company can be a subsidiary where the parent company has control, including through majority voting rights or the ability to appoint or remove a majority of directors. A company that is 100% owned by another company is known as a wholly owned subsidiary.

Differences from other companies

Legally, a holding company is usually structured as a private limited company and must be registered with Companies House in the same way. However, unlike a normal limited business, a holding company may not carry out day-to-day trading activities, although it can carry out other activities such as providing management services to its subsidiaries. Instead, it may receive income such as dividends generated by the shares in its subsidiaries.

Can a holding company trade?

Yes, a holding company can carry out activities beyond simply owning shares. For example, it may provide management or administrative services to its subsidiaries. Whether it is carrying out an economic activity is particularly relevant when considering VAT treatment.

Benefits of setting up a holding company in the UK

Holding companies are often viewed as something reserved for large corporations – but this isn’t always the case. In some cases, SME businesses can benefit from splitting into a group of subsidiaries owned by a holding company. Here are the main benefits to help you make a decision: 

• Risk management: having a holding company is a great way to manage risk. Not only is the holding company protected from liability for a subsidiary’s losses, debts and legal failings, but you can also actively manage risk by assigning certain activities to specific subsidiaries and ‘siloing’ them. This requires active management and ongoing supervision but is one of the most compelling reasons that some of Britain’s largest organisations use holding companies. 
• Asset protection: if a business owns assets, they can use a holding company as protection. Once a holding company owns its subsidiaries' assets, they are protected if the subsidiary fails or is sold off. 
• Management efficiency: having a holding company allows you to centralise all of the administrative, marketing and financial decisions for your group of companies. Each subsidiary can then effectively ‘lease’ the centralised team’s time – saving the cost of each one needing an in-house team. 
• Tax benefits: one of the main benefits of a holding company comes through all of the tax advantages they unlock. Subsidiaries can pay dividends to holding companies without any corporation tax liability. Property can often be moved within a group without stamp duty obligations. Stamp Duty Land Tax (SDLT) group relief applies only if specific conditions are met, such as the companies being in a 75% group relationship and no disqualifying arrangements being in place. There is also a scheme known as ‘substantial shareholding exemption’, which exempts a holding company from capital gains tax when disposing of shares in a subsidiary. To maximise the benefit of these tax rules, you should seek the advice of a professional accountant such as one of the team here at Crunch. 

What are the disadvantages of a holding company?

While a holding company can have advantages, it can also add complexity and cost. Each company in the group has its own filing, accounting and compliance responsibilities.There can also be tax and legal consequences when transferring existing shares, property or other assets into a group structure. For a smaller business, these additional costs and responsibilities may outweigh the benefits.

How to set up a holding company in the UK

If you’re interested in setting up a holding company in the UK, you can read our guide to setting up a limited business as many of the steps are similar. In brief, however, the steps are:

1. Choose a company name and structure. The majority of holding companies are private limited companies. Before 2015 you weren’t allowed to use ‘holding’ in a company name, but can now include it without needing permission. 
2. Register your business with Companies House by providing your company name, registered office address, statement of capital, details of shareholders and directors, your memorandum and articles of association. You’ll also need to provide a registered email address and information about the company’s people with significant control (PSCs). Identity verification is usually required by Companies House too.
3. Appoint any directors or stakeholders named in the application and begin carrying out duties. 
4. Once registered, depending on your current banking situation, you may need to open a new business bank account for the holding company. 

How does a holding company structure work?

The easiest way to see how a holding company structure works is by giving an example. Imagine you own a successful consulting business and want to start a separate property business. 

The holding company owns the shares in both subsidiary companies. Consulting Ltd can run the trading business, while Property Ltd can own the property. Each company remains a separate legal entity, rather than all of the activities being carried out through one company.

So it would effectively be:

You → Holding Company Ltd → Consulting Ltd & Property Ltd.

That means the two businesses can operate separately, while you retain ownership of both through the holding company. It can be useful where you want to keep different activities or assets in separate companies, rather than running everything through a single trading company. 

Tax benefits of holding companies

We’ve touched upon some of the benefits already, but the potential tax advantages associated with a holding company are one of the main reasons businesses choose to use them. Here’s a closer look at some of the key tax considerations:

1. Dividend exemption

Dividends received by a UK holding company from its subsidiaries (both UK and overseas) are typically exempt from corporation tax, provided certain conditions are met. This avoids double taxation on profits.

2. Capital Gains Tax exemption (Substantial Shareholding Exemption)

Under the Substantial Shareholding Exemption (SSE), capital gains made from selling shares in a subsidiary are exempt from corporation tax if the holding company has held at least 10% of the subsidiary's shares for 12 consecutive months in the past 6 years.

3. Group relief

Losses from one group company can be offset against the profits of another company within the group, reducing your overall tax liability.

4. Interest deductibility

Interest payments on loans used to acquire shares or fund subsidiaries may be deductible for corporation tax purposes, subject to anti-avoidance rules.

5. Withholding tax reduction

Dividends paid from UK companies to holding companies are generally not subject to withholding tax. Additionally, tax treaties may reduce withholding tax on dividends, interest, or royalties received from foreign subsidiaries.

6. VAT Group registration

A holding company and its subsidiaries can register as a VAT group, which means no VAT is charged on transactions between group members, improving cash flow and simplifying administration.

This is true, only if the holding company is making or intending to make VAT able supplies. A pure holding company (one that only holds shares) is not eligible for VAT group registration unless it actively manages subsidiaries.

7. Asset protection

A holding company can ring-fence valuable assets (such as intellectual property or property investments) from trading risks by holding them separately.

8. Inheritance tax planning

Holding companies can form part of estate planning strategies to help mitigate inheritance tax, especially when structured with family trusts.

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Is a holding company right for you?

Though international brands famously utilise holding companies, some smaller businesses may also benefit from restructuring into a group of companies managed by a single parent company. 

When a holding company is worth considering

• You want to separate different business activities.
• Retain profits or valuable assets outside a trading company.
• Bring multiple businesses under common ownership.
• Or create a structure that could make future investment or a sale easier.

However, a holding company isn’t automatically more tax-efficient than or better for every business. You’ll have additional companies to administer, and moving existing shares, property, or other assets into a group can have tax and legal consequences.

As with any important business decision, it is not something you can take lightly. We recommend consulting multiple advisors, such as a legal professional, a business planning expert, and an experienced accountant, before considering setting up a holding company. 

Examples of UK holding companies

Some of the UK’s most famous brands operate holding companies. These include the likes of: 

• Tesco PLC: Tesco has multiple parent companies with their own subsidiary companies. This splits the risk into a diversified range of groups and includes brands such as Tesco Personal Finance PLC, Tesco Property Holdings Limited, and Tesco Stores Limited. 
• Octopus Group: Octopus is famed for its Octopus Energy subsidiary, but it also owns Octopus Money, Octopus Investments, Octopus Real Estate and many other brands. 
• Virgin: Richard Branson’s brand is a great example of a successful group of companies that operates under the ‘Virgin Group’ parent company. Brands include Virgin Active, Virgin Hotels, Virgin Bet and many more. 

Let's take a closer look at Unilever to explore the structure in more detail and show why you may use it.

Unilever

One of the world’s biggest consumer packaged goods companies, Unilever PLC is a famous holding company that owns brands such as Dove, Toni & Guy, Ben & Jerry’s and many more. In 2020, the brand merged its Dutch Unilever N.V. company into Unilever PLC to form a single holding company that controls all of its subsidiaries. 

This reduces operational complexity and makes it far easier for the company to make strategic portfolio changes and control all governance matters from its centralised PLC. 

To be or not to be a holding company

There’s no one-size-fits-all approach to setting up a holding company. For some businesses, it can provide a useful structure for managing multiple companies, assets and activities. For others, the extra complexity simply may not be worthwhile.

If you’re considering setting one up, it’s important to understand how the structure would work for your business and the tax and legal implications before making any changes. Professional accounting and legal advice can help you weigh up your options and decide whether it’s right for you.

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