What a group looks like
At the top sits the holding company (“holdco”), which owns the shares in one or more trading subsidiaries. The holdco usually doesn’t trade; it holds shares and often valuable assets. It’s an ordinary limited company — “holding company” describes its role, not a special legal form.
Why owners use a holding company
- Protect assets — keep property, cash or IP in the holdco, away from the risk of the trading company
- Easier sale — sell one trading subsidiary without disturbing the rest of the group
- Move profits up tax-free — subsidiary dividends to the parent are generally exempt, ready to reinvest or hold
- Bring in investors or separate distinct business lines cleanly
The tax features
- Tax-free inter-company dividends — profits flow up to the holdco without a further Corporation Tax charge
- Group relief — one company’s losses can shelter another’s profits
- Substantial Shareholding Exemption — a gain on selling a qualifying trading subsidiary can be exempt from Corporation Tax
- VAT groups — group companies can register for VAT together in some cases
The associated-company trap
The flip side: the £50,000 and £250,000 Corporation Tax thresholds are divided between associated companies. A holdco plus two trading subsidiaries means each company’s small-profits band is a third of the size — pushing profits into the 26.5% marginal band, or the 25% rate, sooner. A group also means more accounts and returns.
Restructure carefully
A group can be very effective — but moving shares or trades into a new structure has Stamp Duty, Capital Gains and other consequences, and isn’t worth doing without a clear reason. We’ll tell you whether a holding company genuinely helps you and handle the group accounts if you have one. Call 0114 327 1480.