Setting up a holding company
12 questions to answer before you insert a holding company
A checklist for owner-managers: purpose, sale plans, cash, property, shareholders, clearances, corporation tax, reliefs and admin before a holdco.
By Omar Aswat CTA ·
A holding company can be one of the most useful structures an owner-managed business ever adopts. It can also be an expensive piece of admin that solves nothing. The difference is usually made before anything is signed.
These are the twelve questions we work through with owners and their advisers before a holding company (HoldCo) is inserted over a trading company (TradeCo). You won't have every answer yet. That's fine. But each one should have been asked.
The checklist at a glance
| # | Question | Why it matters |
|---|---|---|
| 1 | What is the holding company for? | Drives the structure and the tax analysis |
| 2 | Are you likely to sell, and when? | Clearance disclosure, BADR, SSE timing |
| 3 | How much cash is there, and what is it for? | Trading status and protection from risk |
| 4 | Who owns the premises? | Property may belong in its own company |
| 5 | Are all shareholders on board? | The exchange and stamp duty relief need everyone |
| 6 | Does the exchange qualify for relief? | Section 135 conditions |
| 7 | Will HMRC clearance be needed? | Timetable and certainty |
| 8 | What happens to corporation tax rates? | Associated companies |
| 9 | How will money move around the group? | Exempt dividends, loans, s455 |
| 10 | Will BADR and Business Relief still work? | Conditions must be met at HoldCo level |
| 11 | What contracts are affected? | Banks, customers, options |
| 12 | Who will run the admin? | Accounts, filings, board decisions |
1. What is the holding company for?
Write it down in a sentence. "To move surplus cash out of trading risk." "To start a second business without exposing the first." "To separate the building." "To prepare for my children to take over."
The purpose decides the design. It also matters for tax. Since 26 November 2025, the share exchange anti-avoidance rule asks whether the arrangements have a main purpose of reducing or avoiding capital gains tax or corporation tax. A clear commercial purpose is the foundation. See the new main purpose test.
2. Are you likely to sell, and when?
If a sale is possible in the next few years, it shapes everything:
- Business Asset Disposal Relief (BADR) needs its conditions met for two years. HMRC look through a share exchange to the trading company's history, but HoldCo must also meet the tests afterwards. See BADR and holding companies.
- The substantial shareholding exemption (SSE) lets HoldCo sell a subsidiary free of corporation tax, but HoldCo itself needs a 10% holding for at least 12 months.
- Any clearance application must disclose a sale that is in view.
3. How much cash is there, and what is it for?
Cash is the most common reason for a holding company. Dividends from a controlled trading subsidiary to its holding company are exempt from corporation tax, so surplus profits can move up away from trading creditors.
But moving cash to HoldCo doesn't take it out of the group. For BADR and SSE, a group's trading status is tested across the whole group. Large piles of surplus cash anywhere in the group can still count against it. See how much cash is too much.
4. Who owns the premises?
If TradeCo owns its building, a holding company opens up options: moving the property to a sister property company in the group, or later separating it entirely. Each route has capital gains, SDLT and lender consequences. See getting the premises away from trading risk.
5. Are all shareholders on board?
A share-for-share exchange needs every shareholder to swap their TradeCo shares for HoldCo shares. Stamp duty share acquisition relief also expects HoldCo's share classes and each shareholder's proportions to mirror TradeCo. A reluctant minority can stall the project, so talk to everyone early.
6. Does the exchange qualify for relief?
Under section 135 TCGA 1992, HoldCo must end up with more than 25% of TradeCo's ordinary share capital, or the greater part of the voting power, or acquire it through a general offer conditional on control. Inserting a holding company over 100% of a company comfortably qualifies. Partial or staged exchanges need more thought.
7. Will HMRC clearance be needed?
Usually, yes. Clearance under section 138 TCGA confirms the capital gains anti-avoidance rule won't apply. Clearance under section 701 of the Income Tax Act 2007 deals with the transactions in securities rules. Both go in one application. HMRC reply within 30 days. Shares should not be issued until clearance is back. See HMRC clearances and the clearance timeline planner.
8. What happens to corporation tax rates?
A holding company is usually an associated company of its subsidiary. That halves the £50,000 and £250,000 limits for the small profits rate and marginal relief, unless HoldCo is a passive holding company meeting strict conditions. For a company with profits between £50,000 and £125,000, the extra cost is up to £1,875 a year. See does a holding company push up your corporation tax?.
9. How will money move around the group?
Plan the flows before you need them:
- Dividends up from TradeCo to HoldCo are normally exempt.
- Dividends out to shareholders are taxed at 10.75%, 35.75% or 39.35% for 2026/27, after a £500 allowance.
- Loans to shareholders from any close company can trigger a section 455 charge at 35.75% for loans made from 6 April 2026.
- Loans between group companies need documenting, especially if lenders are involved.
See dividends and extracting profit.
10. Will BADR and Business Relief still work?
After the exchange you own HoldCo shares, not TradeCo shares. For BADR, HoldCo must be the holding company of a trading group, you need at least 5% and must be an officer or employee of a group company. For inheritance tax Business Relief, HoldCo shares can qualify where the subsidiaries trade, and the two-year ownership period carries over from your original shares. Excess cash or investments can restrict both. See inheritance tax and holding companies.
11. What contracts are affected?
Check:
- bank facilities for change of control and restructuring clauses;
- customer and supplier contracts for change of control terms;
- employee share options, which are usually written over TradeCo shares;
- shareholders' agreements and articles, which will need replicating at HoldCo level;
- insurance, leases and licences.
12. Who will run the admin?
A group means more than one set of accounts, more than one corporation tax return, board minutes for intra-group dividends and loans, and possibly group accounts. For financial years beginning on or after 6 April 2025, a group is small, and exempt from group accounts, if it meets two of: £15m turnover, £7.5m balance sheet, 50 employees. Budget for the extra compliance and decide who owns it.
Putting the answers together
If you can answer questions 1 to 4 clearly, the rest is technical and we can work through it with you. Our holding company calculator gives a first view of whether the numbers stack up, and the Structure Lab lets you build the group step by step.
We have set up more than 100 holding companies. When you're ready to talk it through, book a call. We respond the same working day.
This article is general information, not advice. Tax rules change and their effect depends on your circumstances. Please speak to us before acting.
- 1Form the new holding company, with the same shareholders and share structure as the trading company.
- 2Apply to HMRC for clearance under s138 TCGA 1992 and s701 ITA 2007, before any shares are issued.
- 3Exchange the shares, then send the stock transfer form to HMRC to claim stamp duty relief under s77 FA 1986.
