What does a holding company do?
A holding company owns shares in one or more subsidiary companies. The subsidiaries usually run the trade, employ people and enter customer contracts. HMRC distinguishes a passive parent that holds investments and receives dividends from an active parent that provides services to its subsidiaries. That distinction matters, particularly for VAT (HMRC VAT guidance).
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.
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.
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 usually owns shares in one or more other companies. Its subsidiaries normally carry on the trading activity. A holding company can be passive, simply receiving dividends, or active if it supplies management or other services. The legal, VAT and tax treatment depends on what it actually does and how the group is owned.
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.
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. They include ownership, holding-period and trading requirements, with anti-avoidance rules. A planned sale needs advice on the actual group and transaction before any steps are taken.
General information only, not personal tax, legal or investment advice. A structure review should use the actual shareholdings, businesses, contracts and intended transactions.