Dividends and extracting profit from a group

Normally not. A dividend paid by a UK company to a holding company that controls it is exempt from corporation tax under Part 9A of the Corporation Tax Act 2009. Small holding companies are covered by a separate exemption that applies to most dividends from UK companies. So profits can move up the group without a tax charge, leaving tax to be paid only when the holding company pays a dividend out to you.

The first £500 of dividends is covered by the dividend allowance. Above that, dividends are taxed at 10.75% within the basic rate band, 35.75% in the higher rate band and 39.35% in the additional rate band. Dividends sit on top of your other income, so salary and other income use up the lower bands first. The holding company pays dividends from profits that have already borne corporation tax in the trading company.

Not on the dividends you actually take. A dividend from your holding company is taxed on you at exactly the same rates as one from your trading company. The advantage is that you can move profits you don't need up to the holding company tax-free, protect them from the trade and reinvest them, without paying yourself a taxed dividend first. The tax saving comes from not extracting cash you don't need personally.

Only if it has distributable profits of its own. A newly inserted holding company usually starts with no realised profits, so it can't pay a lawful dividend until it has received dividends from its trading subsidiary or made profits of its own. The usual order is for the trading company to pay a dividend up first, then for the holding company to pay its shareholders, with board minutes and accounts supporting each step.

Usually from the company you actually work for and that benefits from your work, which is normally the trading company. A salary is deductible only where it is paid wholly and exclusively for that company's business and is reasonable for the work done. Some groups employ directors in the holding company and recharge the cost through a management charge, which can be sensible where you work across several subsidiaries, but it needs documenting.

It depends on your tax band. On our numbers, for £10,000 of company profit taxed at 25%, a basic rate taxpayer keeps £6,693.75 as a dividend but only £6,260.87 as salary, once employer and employee National Insurance and income tax are paid. For a higher rate taxpayer the result reverses narrowly: £4,818.75 as dividend against £5,043.48 as salary. Many directors take a modest salary and the rest as dividends.

Not usually for tax alone. A dividend up is normally exempt, while a management charge is taxable income in the holding company and deductible for the subsidiary, so at the same tax rate it broadly cancels out. A charge makes sense where the holding company genuinely employs the directors or provides finance, HR or IT services and needs income to cover those costs. It needs a written agreement, a reasonable basis and a VAT check.

It can, but it is usually simplest for the company that employs you to pay. Employer contributions are generally deductible where they are paid wholly and exclusively for the business, and HMRC looks at whether your whole remuneration package is reasonable for the work you do. If the holding company employs you and charges your services to the subsidiaries, it may make the contribution. Contributions count towards your annual allowance, normally £60,000.

If you borrow from a close company, whether the trading company or the holding company, and the loan is still outstanding nine months after the end of the company's accounting period, the company pays a temporary tax charge under section 455. For loans made on or after 6 April 2026 the rate is 35.75%. The tax is repaid once the loan is repaid, but not until nine months after the end of the period in which you repay it.

No. Both companies are normally close companies, and you are a participator in both, so a loan to you from either can trigger the 35.75% section 455 charge if it isn't repaid within nine months after the year end. A large interest-free loan can also give you a taxable benefit. Anti-avoidance rules stop you clearing a loan just before the deadline and borrowing again straight afterwards.

Distributable reserves are a company's accumulated realised profits, less its accumulated realised losses. Every company in a group must have enough of its own before paying a dividend, judged by its last accounts or interim accounts. The holding company's reserves come mainly from dividends its subsidiaries pay up. A dividend paid without enough reserves is unlawful, and a shareholder who knew or should have known can be made to repay it.

Yes. A company can buy back its own shares, usually funded from distributable profits, so a holding company can buy out a departing shareholder. If conditions in section 1033 of the Corporation Tax Act 2010 are met, the payment is taxed as a capital gain rather than as a dividend. The conditions include the holding company heading a trading group, the buyback being mainly for the benefit of the trade and the seller having owned the shares for five years.

Yes. Section 1044 of the Corporation Tax Act 2010 lets the company apply to HMRC before the payment is made, asking them to confirm that the capital treatment in section 1033 will apply. The application sets out the reasons for the buyback and how each condition is met. Unlike some other clearances there is no statutory deadline for HMRC to reply, so it is worth applying well before the planned completion date.

It can be, because distributions in a formal winding up are usually taxed as capital gains, at 18% or 24%, or 18% with Business Asset Disposal Relief where the conditions are met, rather than as dividends at up to 39.35%. But an anti-avoidance rule taxes the distribution as a dividend where a 5% shareholder carries on a similar activity within two years and avoiding income tax is a main purpose of the winding up.

Often, yes. The dividend allowance and your basic and higher rate bands are used year by year and can't be carried forward. Spreading dividends across tax years, for example paying some before 5 April and some after, can keep more income in lower bands. It can also keep your income below £100,000, where the personal allowance starts to be withdrawn. The holding company must have the reserves at the time each dividend is paid.

Only if the share rights allow it. Shareholders in the same class of shares must normally receive the same dividend per share. Different classes, sometimes called alphabet shares, can let the holding company pay different dividends to different family members. HMRC can challenge arrangements that simply divert income to a spouse or child under the settlements rules, so share classes need careful design and real rights.

Normally not. Exempt dividends received from its subsidiaries are not taxable, and dividends it pays out are not deductible, so a holding company that only receives and passes on dividends usually has little or no taxable profit. If it has other income, such as interest on cash, management charges or rent, that income is taxed. A holding company with only shares and dividends can also be a passive holding company for the associated companies rules.

It depends on the sale. Cash left in the group is part of what the buyer pays for, so it may come out as capital on the sale, but buyers don't always pay full value for surplus cash, and a large cash pile can put Business Asset Disposal Relief at risk. Paying dividends before a sale gives certainty but is taxed at dividend rates. The answer depends on the price mechanism, your bands and the reliefs at stake.