What is a holding company in the UK?
A holding company is a company that owns shares in one or more other companies, called subsidiaries. Under the Companies Act 2006 it holds a majority of the voting rights, or can appoint or remove a majority of the board. The subsidiaries usually run the trade, employ people and sign customer contracts. The holding company is passive if it only holds shares and receives dividends, and active if it also supplies services such as management to its subsidiaries. That split matters, particularly for VAT (HMRC VAT guidance). Dividends it receives from a subsidiary are usually exempt from Corporation Tax, but shareholders still pay dividend tax when they take money out personally.
A simple group structure
Parent
Holding company
Owns the shares in one or more subsidiaries. It may be passive or may provide services, depending on the facts.
Subsidiary
Trading company
Carries on the trade, contracts with customers and meets its own tax and Companies House obligations.
This is a simplified illustration. A group can have more than one subsidiary, and the right ownership chain depends on the commercial and legal facts.
When do business owners consider a holding company?
It is normally a structure question, not a standard tax product. Owners may ask about a parent company when they operate more than one company, are separating activities, or are planning for a possible future transaction. Those situations do not by themselves make a holding company appropriate.
The starting point is what each company will own, do and fund. We then check the existing share ownership, contracts, finance arrangements and reporting obligations before discussing incorporation or a restructure.
What is a subsidiary, and how does it differ from a holding company?
Section 1159 of the Companies Act 2006 defines the relationship. A company is a subsidiary of another company, its holding company, if that other company holds a majority of the voting rights in it. It also counts if the other company is a member and can appoint or remove a majority of its board, or is a member and controls a majority of the votes under an agreement with other members. A subsidiary of a subsidiary is also a subsidiary of the top company.
A wholly-owned subsidiary has no members other than its holding company and that company's other wholly-owned subsidiaries. The companies stay separate legal entities. Each keeps its own accounts, Companies House filings and Corporation Tax return.
| Term | What it means | Typical role |
|---|---|---|
| Holding company | Owns the shares and has control of another company | Owns shares, receives dividends, may own other assets |
| Subsidiary | The company that is controlled | Trades, employs staff, signs contracts |
| Wholly-owned subsidiary | No other shareholders apart from the group | As above, with 100% group ownership |
| Sister company | Two subsidiaries with the same holding company | Separate trade or asset within the group |
What is a passive holding company?
A passive holding company holds shares and receives dividends. It does not provide services to its subsidiaries and does not trade. HMRC's VAT guidance says that simply holding shares and receiving dividends is not an economic activity. In practice a passive holding company usually cannot register for VAT or recover VAT on its own costs, such as professional fees.
An active holding company supplies something to its subsidiaries, for example management, finance or administration services, and charges for it. Those charges can be taxable supplies, so VAT registration may be possible. It also means the charges need a commercial basis and proper invoices. The right label depends on what the company actually does, not on what it is called.
What is a personal holding company?
"Personal holding company" is not a defined UK tax term. People use it for a company set up to hold an individual's own shares or investments, such as a holding company above their trading company or a company holding savings and property. The word comes mainly from US tax law.
In UK tax the concepts that matter are a close company (broadly, one controlled by five or fewer shareholders, or by its directors) and a close investment-holding company. A close investment-holding company cannot claim Corporation Tax Marginal Relief, so the 25% main rate effectively applies from the first pound of profit (GOV.UK Marginal Relief). A holding company that only holds shares in trading companies is usually treated differently from one that holds investments or lets property.
How is a holding company taxed in the UK?
The holding company pays Corporation Tax on its own taxable profits. The rates for 2026/27 are 19% on profits up to £50,000, 25% on profits over £250,000, and Marginal Relief in between (GOV.UK Corporation Tax rates). The £50,000 and £250,000 limits are divided by the number of associated companies, and every company in a group counts. A holding company with two subsidiaries has two associated companies, so each company in the group has limits of £16,667 and £83,333.
| Question | Short answer | Check first |
|---|---|---|
| Dividends from a subsidiary to the holding company | Usually exempt from Corporation Tax | Whether the payment is a true dividend |
| Dividends from the holding company to shareholders | Dividend tax: 10.75%, 35.75% or 39.35% in 2026/27, above a £500 allowance | The shareholders' other income |
| Losses in one company, profits in another | Group relief is possible between 75% group companies | The 75% ownership and entitlement tests |
| Selling shares in a subsidiary | May be exempt under the substantial shareholding exemption | 10% holding for 12 months, plus trading conditions |
| Moving shares into the holding company | Stamp duty of 0.5% on share transfers may apply, and the shareholders' Capital Gains Tax position needs checking | Reliefs, clearance and the share exchange terms |
| VAT | Depends on whether it is passive or active | What the company supplies |
Worked example: cash left in the holding company
Sam owns 100% of Trading Ltd. Trading Ltd has £60,000 of profit after Corporation Tax available to distribute in 2026/27. Sam has no other income.
- Without a holding company. Trading Ltd pays Sam a £60,000 dividend. £12,570 is covered by the Personal Allowance and £500 by the dividend allowance. £37,200 is taxed at 10.75% (£3,999) and £9,730 at 35.75% (£3,478). Dividend tax is about £7,477.
- With a holding company. Trading Ltd pays the £60,000 up to Sam's Holdco Ltd. The dividend is usually exempt from Corporation Tax, and Holdco pays nothing on it. Sam pays no personal tax until Holdco pays him a dividend.
The saving is a timing difference, not a permanent one. When Sam takes the money out of Holdco, the same dividend tax applies. The structure helps when the cash is meant to stay in the group, for example to invest or lend to a second company. It does not help if Sam needs the money personally. Holdco costs also add up: a second set of accounts, a Corporation Tax return and Companies House filings every year. The figures use the rates on GOV.UK and are illustrative only.
How do you set up a holding company?
- Decide the purpose. Write down what Holdco will own, who the shareholders are and whether it will lend money or charge for services.
- Check the starting position. List the current shareholders, share classes, loans, guarantees, property and any lender or customer consent rights.
- Incorporate the new company. The Companies House fee is £100 online (Companies House fees). Appoint directors, issue the shares and record the people with significant control.
- Move the shares, if it will sit above an existing company. This is usually a share exchange. The shareholders transfer their shares in Trading Ltd to Holdco and receive new Holdco shares. Check stamp duty, Capital Gains Tax reliefs and whether to apply for HMRC clearance first.
- Register and keep records. Register the new company for Corporation Tax, set up its bookkeeping and file its accounts and Confirmation Statement each year.
Inserting a holding company above an existing business is a restructure, not a form-filling exercise. The legal documents, the tax steps and the lender position should be agreed before any shares move.
Does a holding company create a Corporation Tax group?
Not automatically. HMRC's group-relief rules use ownership and economic-entitlement tests. In the usual parent-and-subsidiary case, the parent must beneficially own at least 75% of the subsidiary's ordinary share capital and be entitled to at least 75% of both its profits and assets on a winding up.
A common director, a shared address or a similar business name does not meet those tests. Other group rules can have different definitions, so a conclusion for group relief should not be copied into another tax question (HMRC group relationship guidance; HMRC entitlement conditions).
How does VAT work for a holding company?
VAT follows the activities of the individual company. A passive parent that simply holds shares and receives dividends is not normally carrying on an economic activity for VAT. HMRC says a holding company needs to make, or intend to make, taxable supplies to register for VAT.
That means a parent charging genuine management or other services to subsidiaries needs a different VAT review from a parent that merely receives dividends. Do not assume a group VAT position from the legal diagram alone.
What about a future sale of a subsidiary?
A company selling shares in a subsidiary may be able to use the substantial shareholding exemption. It is not a general exemption for any group sale. The detailed conditions include qualifying ownership, a continuous holding period and trading requirements, with anti-avoidance rules.
HMRC's guidance gives the broad ownership and twelve-month holding conditions, but the outcome turns on the facts of the companies and the deal. A proposed sale, insertion of a holding company or share exchange should be reviewed before documents are signed (HMRC substantial shareholding exemption overview; HMRC qualifying conditions).
Can you set up a holding company yourself?
Companies House formation is only one part of the decision. A new company still needs directors, shareholders, people with significant control, a registered office and the correct records. If it will sit above an existing company, the share movement and any connected agreements need separate review.
Our company-formation service handles the formation process alongside the accounting structure. GOV.UK also explains the core information needed to register a limited company. If you want holding company tax advice for your own shares and businesses, book a 30-minute call and bring your current share structure.
Common mistakes with holding companies
- Assuming a holding company removes personal tax. It defers it until money is paid out to the shareholders.
- Moving shares or property in without checking stamp duty, Capital Gains Tax and lender consent.
- Treating a shared director or address as a group. Group relief needs the 75% tests.
- Registering for VAT, or reclaiming VAT, on a passive holding company.
- Forgetting the annual filings. A holding company needs its own accounts, Corporation Tax return and Confirmation Statement.
- Paying management charges that have no written agreement or commercial basis.
What should be reviewed before setting one up?
A holding-company decision needs the ownership and operations behind the chart. These are the checks that prevent a generic structure from becoming a later correction.
Ownership and control
Start with the proposed shareholders, share classes and voting rights. A group is not defined by a shared director or a similar trading name.
What the parent will actually do
A company that only receives dividends is different from one that charges management, finance or administration services to its subsidiaries.
Current companies and assets
Moving shares, a property or a business into a new structure can have tax, legal, lender and consent consequences. It is not a form-filling exercise.
The reason for the structure
The answer may involve separating operations, supporting more than one trading company or planning for a future sale. The facts decide whether the structure fits.
What a holding company does not do automatically
It does not make every company a VAT group, create group relief, make a future sale exempt or remove the compliance duties of the parent and subsidiaries. It is a legal structure that needs a factual tax and accounting review.
Related company guidance
Holding company FAQs
What is a holding company in the UK?
A holding company is a company that owns shares in one or more other companies, called subsidiaries. Under section 1159 of the Companies Act 2006 it is the holding company if it holds a majority of the voting rights, or is a member and can appoint or remove a majority of the board. The subsidiaries usually carry on the trade.
What is a passive holding company?
A passive holding company only holds shares and receives dividends. It does not supply services to its subsidiaries. HMRC does not treat simply holding shares and receiving dividends as an economic activity for VAT, so a passive holding company normally cannot register for VAT or recover VAT on its costs. An active holding company, for example one that charges management fees, is treated differently.
What is a personal holding company?
Personal holding company is not a UK legal or tax term. People use it for a company that an individual sets up to hold their own investments or shares. In the UK the nearest tax concepts are a close company (broadly, controlled by five or fewer shareholders, or by its directors) and a close investment-holding company. A close investment-holding company cannot claim Corporation Tax Marginal Relief.
What is a subsidiary company in the UK?
A subsidiary is a company controlled by another company, its holding company. Control means the holding company holds a majority of the voting rights, or is a member and can appoint or remove a majority of the board. A wholly-owned subsidiary has no members other than its holding company and that company's other wholly-owned subsidiaries.
How do you set up a holding company?
Decide what the holding company will own and do. Then incorporate a limited company with Companies House (the online fee is £100) and set up its shares, directors and people with significant control. If it will sit above an existing company, the owners usually transfer their shares to it in exchange for new shares. Tax, stamp duty and lender consents need checking before any shares move.
Does a holding company automatically create a group for Corporation Tax?
No. For group-relief purposes, ownership and entitlement tests matter. HMRC says a parent company must generally own at least 75% of a subsidiary's ordinary share capital and have at least 75% entitlement to its profits and assets on a winding up. Common directors alone do not establish the relationship.
Can a holding company register for VAT?
It depends on its activities. HMRC distinguishes passive shareholding from an active holding company that supplies management or other services. A company must make, or intend to make, taxable supplies to register for VAT. Receiving dividends alone is not normally an economic activity for VAT purposes.
Are dividends a holding company receives from a subsidiary taxed?
Usually not for Corporation Tax. HMRC's manual says most dividends and other distributions a UK company receives, from UK or overseas companies, are exempt under Part 9A of the Corporation Tax Act 2009. Some non-dividend distributions, such as certain interest-type payments on non-commercial securities, are not exempt. VAT, group relief and what the shareholders pay personally are separate questions.
Is selling a subsidiary always tax free for a holding company?
No. The substantial shareholding exemption can make a qualifying company share disposal non-chargeable, but the conditions are detailed. Broadly, the company must hold at least 10% of the ordinary share capital for a continuous 12 months in the six years before the sale, and trading conditions apply, with anti-avoidance rules. A planned sale needs advice on the actual group and transaction before any steps are taken.
Does a holding company pay less tax?
Not by itself. Dividends paid up from a subsidiary to a holding company are usually exempt from Corporation Tax, so cash can sit in the holding company without a second company tax charge. But when the shareholders take money out personally, dividend tax applies as normal: 10.75% basic rate, 35.75% higher rate and 39.35% additional rate in 2026/27, above a £500 allowance.
General information only, not personal tax, legal or investment advice. A structure review should use the actual shareholdings, businesses, contracts and intended transactions.