A Founder’s Guide to Holding Companies

Ring-Fence Risk and Reinvest Smarter..

If you’ve built a business that’s growing legs, you’ll hit this moment sooner than you think:

You’ve got cash building up, maybe you’ve bought some kit, maybe you’re eyeing property, maybe you’ve launched a second brand… and then you clock it.

Everything valuable is sitting inside the same company that deals with clients, staff, contracts, complaints, and the occasional “we might sue you” email.

That’s when founders start asking about holding companies.

Not because it’s trendy. Because it’s tidy. And because it helps you sleep.

Let’s talk about what a holding company is, why people use them, and the tax bits you need to get right so you don’t accidentally build a beautiful structure that collapses in a light breeze.

What is a holding company?

A holding company (HoldCo) is a company set up mainly to own and control one or more other companies (subsidiaries).

In UK company law, the parent-subsidiary relationship is defined in the Companies Act 2006 (including the “majority voting rights” and control tests).

In plain English:

• HoldCo sits at the top and owns the shares.

• Trading companies (OpCos) sit underneath and do the day-to-day work.

HoldCo can also own assets like:

• property

• intellectual property (brand, trademarks, software)

• investments

• cash reserves

The trading company then gets on with running the business, without holding all the “crown jewels” in the same place.

Why people actually set one up

Most founders don’t wake up thinking, “I fancy a group structure today.”

They do it because they want:

• protection (keep valuable assets away from trading risk)

• structure (clear separation of different activities)

• options (growth, investment, exits, succession)

And yes, sometimes there are tax advantages, but only when it’s designed properly and run properly.

10 advantages of a holding company group structure

1️⃣ Ring-fencing risk
Trading risk can be separated from valuable assets (cash, IP, property). If one company has a wobble, it doesn’t automatically drag everything down with it.

2️⃣ Tax-efficient profit movement
Dividends between UK group companies are generally exempt from corporation tax under the dividend exemption regime (with rules and exceptions).

3️⃣ Reinvestment without personal tax leakage
Instead of extracting profits personally (where income tax can go up to 45%), you can often redeploy profits within the group first, keeping more fuel in the tank for growth.

4️⃣ Stronger exit planning
Cleaner structures help with share sales, MBOs, and private equity investment. It also supports planning around Substantial Shareholding Exemption (SSE), where conditions are met.

5️⃣ Asset protection
Surplus cash and investments can sit outside the main trading company. Less exposure to day-to-day trading liabilities.

6️⃣ Centralised ownership & control
One HoldCo can simplify governance and ownership across multiple ventures, brands, and subsidiaries.

7️⃣ Succession & IHT planning
A group can support longer-term planning (different share classes and family structures), when it’s appropriate and properly advised.

8️⃣ Financing flexibility
You can borrow, lend, or bring in investors at the right level (HoldCo vs a specific subsidiary), depending on risk and purpose.

9️⃣ Operational clarity
Separate companies make it easier to see what’s profitable, what’s not, and who’s responsible for what.

🔟 Greater credibility
Banks, investors, and buyers often prefer a clear group structure because it’s easier to understand and easier to diligence.

5 disadvantages (the bits people ignore until it’s annoying)

⚠️ Higher setup and advisory costs
Legal work, valuations, structuring fees, and sometimes HMRC clearances can add up.

⚠️ Increased ongoing compliance
Multiple companies means multiple accounts, corporation tax returns, and admin. It’s not hard, but it is more work.

⚠️ Complexity if poorly designed
Mistakes can trigger tax costs (CGT, stamp duty, SDLT) or restrict future planning.

⚠️ Relief restrictions
Group relief and loss planning have strict conditions and limitations. It’s not automatic.

⚠️ Exit risks if structured incorrectly
If the group isn’t built with the end in mind, you can compromise SSE eligibility or make a sale harder than it needs to be.

The tax bit: what HMRC will care about

1) A holding company is usually taxed like any other company

No special badge. No magic wand.

Where it gets interesting is when HMRC (and your future buyer) ask:

Is the holding company “trading” or is it purely an investment company?

2) Investment vs trading: why it matters

If HoldCo only buys, holds and sells shares, that’s normally investment activity.

If HoldCo provides management services to subsidiaries (and charges for them), it may be carrying on a trade to some extent.

That distinction can affect:

• what expenses are deductible and how

• whether certain reliefs apply

• VAT treatment (more below)

• exit planning (especially SSE)

3) Income: dividends vs management charges

Dividends from subsidiaries
Most dividends received by UK companies are exempt, but you need to understand the dividend exemption categories and exceptions.

Management charges
If HoldCo genuinely provides services and charges subsidiaries, that income is typically taxable as trading income. It also needs to be commercially justifiable and documented.

4) Losses and group relief

Group relief can be useful, but the rules are strict and based on group relationships and conditions. There are also limitations, especially around carried-forward losses and other situations.

5) Selling a subsidiary: SSE is the big one

SSE can exempt gains on the disposal of shares, but trading status matters and HMRC talk about non-trading activities and thresholds when assessing the trading requirement.

This is why we build group structures with the end in mind, even if “exit” feels miles away.

6) VAT: the sneaky one

If HoldCo only holds shares and collects dividends, that often doesn’t count as an economic activity for VAT purposes.

But if HoldCo provides management services to subsidiaries, the VAT position can change. This is one of those “small detail, big consequence” areas, so it needs to be considered at design stage, not after you’ve been doing it for 18 months.

How to set up a holding company (the sensible way)

Here’s the process we take clients through at Boffin:

1) Start with your reason
Risk protection? Buying property? Launching a second business? Future sale? Investors?

2) Map what sits where
What assets do you want protected? What activities are high risk? What needs to stay separate?

3) Build the structure on paper first
Who owns what, where the cash will flow, whether there will be management charges, and what that means for tax and VAT.

4) Incorporate the HoldCo and implement the structure properly
This is where the legal and tax mechanics matter. “Moving shares around” casually can create unexpected tax costs.

5) Put the boring stuff in place (this is the important part)
Separate bank accounts, intercompany agreements (loans, management charges, leases, IP licences), proper bookkeeping.

6) Run it like you mean it
A group structure only works if you respect it day to day. No “it’s all basically the same company” behaviour.

Common mistakes we stop people making

• Putting property into the trading company “for convenience”

• Moving shares or assets without understanding tax consequences

• Charging random management fees with no contracts or rationale

• Not thinking about SSE or future sale requirements early enough

• Treating the group like one bank account (HMRC hates that, buyers hate it more)

FAQs

Does a holding company generate revenue?
Not from trading, if it’s purely an investment HoldCo. It may receive dividends, interest, and gains on disposals. If it provides services, it can also have management charge income.

If one subsidiary fails, are the assets safe?
Often the structure helps ring-fence risk, but guarantees, messy intercompany balances, or blurred boundaries can weaken protection.

Is it worth it for a small business?
Sometimes yes, especially if you’re expanding, buying assets, or want a clean exit path. Sometimes no, if it adds complexity with no real benefit.

Final word

A holding company is not a loophole. It’s not just “clever tax stuff”. It’s grown-up structure.

When it’s right, it gives you:

• protection

• clarity

• flexibility

• options for growth and exit

When it’s rushed or copied from a friends setup… it can create extra cost, extra admin, and the kind of tax headaches ...

If you’re thinking about a group structure, we can help you design it properly, set it up cleanly, and run it smoothly in Xero, so it stays compliant and useful as you grow..