Most businesses do not need a holding company. A single trading company is often the simplest and most sensible structure.
A holding company becomes worth considering when there is a specific reason for it. That might be more than one business, surplus cash or property you want to keep apart from the trading company, plans to sell, or new shareholders coming in. It is rarely worth setting one up just because it sounds tax-efficient. It adds cost and administration, and setting it up has tax and legal steps that need to be done properly.
What is a holding company?
A holding company is a company that owns shares in one or more other companies, known as its subsidiaries. It usually does not trade itself. In a typical owner-managed business, the owner holds shares in the holding company, and the holding company owns the trading company.
Together, the companies form a group. Group Company Structures: When Do They Make Sense? looks at groups with several companies.
When does a holding company make sense?
These are the situations where a holding company is most often worth looking at:
- You run, or plan to run, more than one business. A holding company can own each one, keeping them separate while giving you one place at the top.
- The trading company has built up cash it does not need. Owners sometimes want to move surplus profits out of the trading company, where they are exposed to its business risks, without paying them out personally.
- You want property or other assets held separately from the trading business.
- You may sell a business, or part of one, in future. The tax outcome of a company selling a subsidiary can be different from you selling your own shares.
- You are bringing in shareholders. A group can let people hold shares in one business without owning all of them.
- You want to invest profits in new ventures without mixing them into the existing trading company.
If none of these apply, a holding company may add cost without much benefit.
What are the main tax points?
Tax is often the reason people ask about holding companies, and the effect depends on the facts. These are the points that come up most often. Each has conditions and exceptions.
Dividends from the trading company. Most dividends received by UK companies are exempt from corporation tax, subject to conditions and anti-avoidance rules. That usually means profits can be paid up from a trading subsidiary to its holding company without further corporation tax. It does not change the tax you pay when money reaches you personally. Dividends from the holding company to you are taxed in the normal way.
Selling a subsidiary. Under the substantial shareholding exemption, a gain made by a company when it sells shares in another company can be exempt. Broadly, the selling company must have held at least 10% of the ordinary shares for a continuous period of at least 12 months, ending no more than five years before the sale, and conditions about the trading nature of the companies must be met. Whether it applies depends on the details at the time.
Losses between companies. Group relief can allow a loss in one company to be set against profits of another. It needs a 75% relationship, meaning one company owns at least 75% of the other's ordinary share capital (directly or indirectly), or both are 75% owned by the same company.
Corporation tax thresholds. The £50,000 and £250,000 limits for the small profits rate and marginal relief are divided between associated companies. HMRC's example is a company with three associated companies, whose limits are divided by four. Adding companies can therefore change how much profit is taxed at each rate. Not every company counts, and there are exceptions, so this needs checking against your structure.
Setting it up. A holding company is usually created through a share-for-share exchange: you transfer your shares in the trading company to a new holding company in return for shares in it. The tax rules can allow this without an immediate capital gains tax charge, but only if conditions are met and the arrangement is not mainly for tax avoidance. Those anti-avoidance rules were changed from 26 November 2025. HMRC offers an advance clearance procedure, which is commonly used so the position is agreed before the transaction goes ahead. Stamp duty also needs considering.
Does a holding company protect your assets?
It can help separate risk, but it does not protect assets automatically.
Each company is a separate legal entity, so a problem in one company does not automatically pass to the others. But:
- personal guarantees you have given still apply;
- banks and lenders often take security across the whole group or ask for cross-guarantees;
- moving assets out of a trading company can have a tax cost, and if it happens for less than their value, or when the company is in difficulty, it can be challenged later by an insolvency practitioner;
- directors still have duties to each company, including to its creditors when it is in financial difficulty.
A structure set up in good time, for sound commercial reasons, is on much firmer ground than one set up after problems have started. Asset protection is a legal question as much as an accounting one, and it is worth taking legal advice if it is a main reason for the change.
What does a holding company cost to run?
- An extra set of annual accounts, a corporation tax return and a confirmation statement each year.
- A bank account and some record keeping, even if activity is low.
- Board minutes and paperwork for dividends and intercompany transactions.
- Possibly group accounts. A parent company must usually prepare them, but small groups can choose not to. For financial years starting on or after 6 April 2025, a group is small if it meets two of these: turnover of no more than £15 million net (£18 million gross), a balance sheet total of no more than £7.5 million net (£9 million gross), and no more than 50 employees.
Accountancy fees are only part of the cost. The legal work to set it up, and the time spent keeping it in order, also count.
When is legal advice needed?
A holding company involves company law as well as tax. A solicitor should usually be involved for:
- the share exchange documents and any new articles of association;
- shareholders' agreements, especially where there is more than one shareholder;
- transfers of property or other assets between companies;
- anything where protecting assets is a main purpose.
Your accountant should work with the solicitor on the tax side, the clearance application and the accounting afterwards.
What should you ask before setting one up?
- What specific problem is it solving, and is there a simpler way?
- What will it cost to set up and to run each year?
- What happens to tax on money you take out personally? Often, nothing changes.
- How will it affect a future sale or succession plan?
- What do the bank and any lenders need to know or agree to?
The short answer
A holding company is a useful tool when there is a clear reason for it, and an unnecessary cost when there is not. The timing and method matter as much as the decision. It is worth thinking about well before a sale, investment or expansion, not in the weeks before one.
Groups & Company Structures explains how we help with structures like this, and Accounting covers the ongoing accounts and tax work. If you are thinking about changing who owns the shares, Changing Shareholders or Share Structure covers the points to consider. For a broader look at choosing a structure, see The Best Business Structure For You.