As a business grows, so does its structure. Many UK business owners start with a single limited company but, over time, begin to explore more strategic ways of organising their operations. One of the most effective approaches is creating a holding company.
But what exactly is a holding company, and why might it be useful for your business?
What is a Holding Company
A holding company is a parent company set up to own and control other companies known as subsidiaries. It doesn’t usually trade or provide services itself. Instead, its primary role is to hold shares in other businesses and oversee their operations from a strategic level.
For example, a holding company might own:
- The trading company where day-to-day business activity takes place
- A separate company holding property and other assets
- Subsidiaries operating in different regions or sectors
This kind of structure is increasingly common among established SMEs in the UK. It can offer a balance between flexibility, protection, and long-term planning.
Why Do Businesses Use Holding Companies
There are several reasons why business owners choose to set up holding companies – ranging from risk management to tax planning. In fact, company reorganisation is often a natural step once a business reaches a certain stage of growth.
5 key benefits you should know
1. Asset Protection
By separating trading activities from valuable assets (such as property, intellectual property, or cash reserves), a holding company structure can provide an extra layer of protection. If the trading subsidiary encounters financial difficulties, the assets in the holding company remain shielded from creditors.
2. Greater Flexibility for Growth
A holding company makes it easier to expand into new markets or diversify into different sectors. New subsidiaries can be set up under the group structure without disrupting the existing trading company.
This flexibility is particularly useful for family businesses and SMEs looking to grow through acquisitions.
3. Tax Efficiency
One of the biggest advantages of a holding company is the potential for tax savings. For example:
- Dividend income paid from a subsidiary to its holding company is often exempt from Corporation Tax.
- In some cases, the Substantial Shareholding Exemption (SSE) can apply when selling a subsidiary, reducing the tax due on gains.
- Group structures can also allow for group relief, where losses in one company can be offset against profits in another.
4. Easier Succession and Exit Planning
A holding company structure can simplify succession planning, as shares in subsidiaries can be transferred or sold without disrupting the whole business. Similarly, it makes it easier to sell off part of the business while keeping control of the rest.
5. Stronger Corporate Governance
For larger owner-managed businesses, a holding company can support clearer governance. It allows directors to separate strategic oversight at group level from day-to-day operations at subsidiary level.
Is a Holding Company Right for You
While holding companies bring significant advantages, they aren’t suitable for every business. The benefits need to be weighed against the additional costs of compliance, administration, and reporting.
If you’re considering setting up a holding company, timing and planning are critical. Getting the structure right from the outset helps avoid unnecessary tax charges and ensures your long-term goals are met.
Guiding you through the process
At Haines Watts, we work with business owners across the UK to design group structures that protect assets, improve efficiency, and create a platform for future growth.
Whether you’re looking at reorganisation, succession planning, or tax efficiency, our team can guide you through the process – ensuring your holding company works for you.
Get in touch with your local team today to discuss whether a holding company is the right step for your business.
