As a business owner, you’ve probably heard the term ‘holding company’, but what does it actually mean? More importantly, how can it benefit your business? 

At Carthy Accountants, we know you want to get the business you want - one that’s structured for growth, protection, and profitability. Setting up a holding company could be the key to helping you achieve those goals.

What is a Holding Company?

Simply put, a holding company is a business that exists to own shares or assets in other companies. Its primary role is to control the companies it owns (called subsidiaries), but it doesn’t typically engage in any day-to-day trading activities itself.

How Does a Holding Company Work?

A holding company doesn’t make or sell products or provide services directly. Instead, it holds assets such as:

• Shares in other businesses (subsidiaries)
• Intellectual property
• Real estate
• Equipment

The holding company exercises control over its subsidiaries but leaves the trading and operational activities to them. This structure allows you to manage risk, simplify ownership, and potentially gain tax advantages.

Why Would I Want a Holding Company?

Many UK business owners ask: What’s the point of setting up a holding company? Isn’t it just more paperwork?

Actually, there are several reasons why setting up a holding company could be a smart move:

1. Risk Protection 
   If you own multiple businesses or assets, a holding company can protect you by ring-fencing each subsidiary’s liabilities. For example, if one subsidiary faces legal issues, the holding company and other subsidiaries are insulated from that risk. This means your personal assets, and those of other businesses you own, are protected.
   
2. Tax Efficiency
   Holding companies may offer tax advantages, especially when it comes to Capital Gains Tax (CGT) and dividend payments. When subsidiaries pay dividends to the holding company, those dividends are often exempt from Corporation Tax. This means more money stays within your business group, giving you extra capital to reinvest.
   
3. Simplified Group Structure 
   If you own multiple businesses, a holding company can simplify ownership and management. Instead of being personally involved in every business decision, the holding company can control subsidiaries from a centralised level, making it easier to manage everything under one umbrella.
   
4. Business Growth and Investment 
   Having a holding company allows you to easily set up new subsidiaries as your business grows, without risking existing assets or businesses. It’s also a flexible structure if you’re looking to bring in investors, as they can invest in the holding company itself or specific subsidiaries.

Setting up a holding company can also make it easier to sell parts of your business without disrupting other areas. This flexibility is one of the main reasons why many large corporations use this structure.

Are There Any Drawbacks to Holding Companies?

While holding companies have many advantages, they’re not always right for every business. There are administrative responsibilities and costs associated with setting up and managing a holding company structure. For example, you’ll need to file accounts for each subsidiary as well as the holding company itself, which can add complexity to your compliance obligations.

However, for many business owners, the benefits far outweigh the costs, especially if you’re managing multiple companies or significant assets.

How Does Tax Work for Holding Companies?

One of the main questions business owners have is: How will a holding company affect my tax liabilities?

Corporation Tax and Dividends

A holding company is subject to Corporation Tax just like any other company. However, one of the major tax advantages of a holding company is the exemption on dividends received from subsidiaries. This means the holding company doesn’t pay Corporation Tax on those dividends, allowing the money to stay within the business for reinvestment.

Capital Gains Tax (CGT) and Substantial Shareholding Exemption (SSE)

• The holding company must have held at least 10% of the subsidiary’s shares for a minimum of 12 months.
• The subsidiary must be an active trading company.

Another significant tax benefit is related to Capital Gains Tax. When a holding company sells shares in a subsidiary, it may not have to pay CGT if it qualifies for the Substantial Shareholding Exemption (SSE). To qualify for SSE:

This exemption can lead to substantial tax savings when selling parts of your business.

Group Relief for Corporation Tax

Important: The tax benefits of a holding company can be complex. At Carthy Accountants, we’ll guide you through the process to ensure you’re maximising your tax advantages while remaining fully compliant with HMRC regulations.

Holding companies and their subsidiaries can benefit from group relief, allowing losses from one subsidiary to offset profits from another. This means the overall tax liability for the group can be reduced, providing another layer of tax efficiency.

How Carthy Accountants Can Help

Setting up and managing a holding company can seem daunting, but at Carthy Accountants, we specialise in helping business owners like you navigate these complexities. We’ll work with you to:

• Understand if a holding company structure is right for your business.
• Ensure the proper legal and tax structures are in place, so you can maximise tax efficiency.
• Manage the ongoing compliance for your holding company and its subsidiaries.

When you work with us, you get more than just accounting services — you get a partner who is invested in helping you grow and protect your business.

If you’re considering setting up a holding company or need advice on your existing structure, contact us today at Carthy Accountants. We’re here to help you protect your assets, maximise your tax efficiency, and get the business you want.