Holding Company Glossary

In everyday use, yes. 'Parent company' is the Companies Act term for a company that controls one or more subsidiaries, and it's the phrase you'll see in rules about group accounts. 'Holding company' is the more common business term, and tax law uses it too, for example when defining a holding company of a trading group. Either way, it means a company that owns shares in other companies.

They're shorthand advisers use in diagrams and step plans. HoldCo is the holding company at the top of the group. TradeCo is the company that runs the business. PropCo is a company that owns property, often the premises the business trades from. InvestCo holds investments or surplus cash. They aren't legal names, and on this site each has its own colour: blue, green, brick and amber.

A company whose shares are all owned by another company, its parent. When a holding company is inserted above an existing business through a share-for-share exchange, the original company usually becomes a wholly owned subsidiary of the new holding company. A subsidiary can also be partly owned, with other shareholders alongside the parent, which changes how some tax and accounting rules apply.

Because different reliefs use different ownership tests. Broadly, a 51% subsidiary is one where the parent owns more than half the ordinary share capital, which matters for things like the definition of a holding company for Business Asset Disposal Relief. A 75% test applies to groups for capital gains and loss relief, with extra conditions about profits and assets. Which test applies depends on the relief.

A subsidiary is owned by another company. Sister companies sit side by side, owned directly by the same shareholders, with neither owning the other. The difference matters: dividends can move up from a subsidiary to its holding company, but cash can't move between sister companies so easily, and some group reliefs only apply where one company owns the other.

They're the main tax Acts. TCGA 1992 is the Taxation of Chargeable Gains Act, which covers share exchanges and capital gains. CTA 2009 and CTA 2010 are the Corporation Tax Acts, covering company profits, dividends and groups. ITA 2007 is the Income Tax Act, which includes the transactions in securities rules. IHTA 1984 covers inheritance tax, and FA means a Finance Act.

HMRC publishes its internal guidance online in manuals, such as the Capital Gains Manual (CG), the Company Taxation Manual (CTM) and the Inheritance Tax Manual (IHTM). They explain how HMRC interprets the law. They aren't law themselves, but they show how HMRC is likely to approach a case, so advisers quote them alongside the legislation, for example HMRC's 20% indicator for 'substantial' non-trading activity.

It means the clearance procedure is set out in the legislation itself, with rules about what HMRC must decide and how quickly. The share exchange and transactions in securities clearances are statutory, and HMRC must reply within 30 days of the application or of any further information it asks for. HMRC also runs a separate non-statutory clearance service for other questions.

Broadly, a UK company controlled by five or fewer shareholders, or by any number of shareholders who are also directors. Most owner-managed companies, and the holding companies above them, are close companies. Several rules apply only to close companies, including the tax charge on loans to shareholders and the transactions in securities rules that HMRC considers when you insert a holding company.

Base cost is what is treated as having been paid for an asset when working out a capital gain. For shares you subscribed for, it's usually what you paid, plus certain costs. On a share-for-share exchange that qualifies for relief, your new holding company shares take over the base cost and acquisition date of your original shares, which is why the exchange itself doesn't normally trigger a gain.

The accumulated, realised profits a company can legally pay out as dividends, after losses. A company can only pay a dividend out of distributable reserves, and directors should check there are enough before declaring one. In a group, each company has its own reserves, so profits usually have to move up as dividends from the subsidiary before the holding company can pay them to shareholders.

It's a defined term covering people and companies whose dealings HMRC treats with extra care. Your spouse or civil partner, relatives and their spouses, business partners, trustees of family trusts, and companies you control, alone or with connected people, are generally connected with you. Transactions between connected persons are often treated as taking place at market value, whatever price is actually paid.

A step plan sets out, in order, each action in a restructure: which company is formed, which shares are issued or transferred, which assets move, which dividends are paid and which filings follow. It shows the tax treatment of each step and the documents needed. It's the document that keeps the client, accountant and solicitor working to the same sequence, and it's often attached to a clearance application.

Heads of terms, sometimes called a letter of intent, set out the main commercial points agreed between a buyer and seller before lawyers draft the full sale agreement, such as the price, how it will be paid and the timetable. They're usually not legally binding, apart from points like confidentiality and exclusivity. Tax planning ideally happens before they're signed.

A cap table, short for capitalisation table, lists who owns the shares in a company: each shareholder, how many shares they hold, of which class, and their percentage. In a group, there's usually one for the holding company and simple ones for each subsidiary. It's one of the first documents we ask for, because ownership drives almost every tax answer in a restructure.

Use the search box at the top of the list, or browse alphabetically. Each entry gives a short plain-English definition and, where it helps, a link to the page that explains the topic in more depth. Abbreviations are listed under the letters themselves, so look for SSE or BADR rather than the full name. If a term is missing, ask us and we'll consider adding it.

Not exactly. The glossary gives plain-English explanations so owner-managers can follow the conversation. Legal definitions are often longer, with conditions and exceptions that matter in particular cases. Where the precise wording affects the outcome, such as what counts as a trading company or a substantial shareholding, we'll work from the legislation itself when we advise you.