A holding company, sometimes known as a parent company, is a very specific type of business that usually conducts no activity other than owning (‘holding’) shares in other companies, managing other businesses, and receiving dividends from subsidiaries.
Section 1159 of the Companies Act 2006 states that a company is the “subsidiary” of another company, its “holding company”, if that other company:
The structure and purpose of holding companies vary. Some are simply private investors who hold shares in a subsidiary and receive dividends. They play no part in the management of the subsidiary or its activities. Other holding companies have voting rights in their subsidiaries and have an active role in the running and management of these businesses.
The majority of dividends that a holding company receives from any UK subsidiaries should be exempt from tax. This is one of the major attractions.
Additionally, provided that the parent company holds at least 10% of the ordinary shares in a subsidiary for a continuous period of 12 months before and after any share disposal, it can dispose of its shareholdings in an active subsidiary without being liable to Capital Gains Tax .
HMRC states that holding companies are not liable for VAT if their basic functions are to:
These activities are not considered ‘taxable supplies’, so they do not attract VAT charges. Furthermore, holding companies are not permitted to register for VAT if these are the only activities they carry out.
Holding companies that provide or intend to provide taxable supplies to a subsidiary, such as management services, are permitted to register for VAT and must do so if their annual taxable supplies exceed £90,000 (the VAT registration threshold).
There are no longer any restrictions on using the word ‘holding’ or ‘holdings’ in a company name , so you are free to register the name without prior approval from the Secretary of State at Companies House.