Running a group
Starting a second business: subsidiary of the holding company or a separate sister company?
Starting a new venture? Compare a subsidiary of your holding company with a sister company you own directly: funding, losses, risk, sale and reliefs.
By Omar Aswat CTA ·
You've built a profitable trading company and now want to start something new: a different service line, a new market, a property venture, an acquisition. The question is where to put it.
There are four common choices:
- A division of your existing trading company (TradeCo).
- A subsidiary of TradeCo.
- A subsidiary of a holding company (HoldCo), sitting alongside TradeCo in a group.
- A sister company owned directly by you, outside any group.
For most owners, the real choice is between options 3 and 4. This article compares them.
The options at a glance
| Division of TradeCo | Subsidiary of TradeCo | Subsidiary of HoldCo | Sister company owned by you | |
|---|---|---|---|---|
| Separate from TradeCo's risks | No | Partly | Yes | Yes |
| Funding from TradeCo profits without dividend tax | Yes | Yes | Yes, via exempt dividends to HoldCo | No: taxed dividend first |
| Start-up losses offset against TradeCo profits | Yes, automatically | Yes, group relief (75%) | Yes, group relief (75%) | No |
| Sale of the new business | Asset sale by TradeCo | SSE for TradeCo | SSE for HoldCo | You sell shares; BADR if conditions met |
| Associated companies | No | Yes | Yes | Yes |
| Admin | Lowest | Moderate | Moderate | Moderate |
Funding the new business
This is often the decisive point.
Inside a group, TradeCo's profits can move up to HoldCo as dividends, normally exempt from corporation tax, and HoldCo can lend them to, or subscribe for shares in, the new subsidiary (NewCo). There's no personal tax.
As a sister company, you'd usually have to take a dividend from TradeCo personally and then invest it in NewCo. For an additional-rate taxpayer in 2026/27, dividends are taxed at 39.35%.
Illustration: putting £500,000 into a new venture
This is an illustration, not a client example.
| Through HoldCo | Personally into a sister company | |
|---|---|---|
| Dividend paid by TradeCo | £500,000 to HoldCo | About £824,400 to you |
| Tax on the dividend | £0 (exempt) | About £324,400 at 39.35% |
| Available to invest in NewCo | £500,000 | £500,000 |
To put the same £500,000 to work personally, TradeCo would need to pay out around £824,400 (£500,000 / 0.6065, ignoring the £500 allowance). The group structure saves around £324,400 of tax on the funding alone.
TradeCo could lend directly to a sister company without a dividend, but then TradeCo's money is at the new venture's risk and the loan is an asset of TradeCo, exposed to its own creditors.
Start-up losses
New businesses often lose money at first.
Within a group, losses can be surrendered between companies as group relief if one is a 75% subsidiary of the other, or both are 75% subsidiaries of HoldCo, with matching rights to profits and assets. If NewCo loses £80,000 in its first year while TradeCo pays 25% corporation tax, surrendering the loss saves TradeCo £20,000 in that year.
As a sister company, NewCo's losses stay in NewCo, to be carried forward against its own future profits. If it never becomes profitable, the losses may never be used.
Protecting each business
Both a HoldCo subsidiary and a sister company keep each business's liabilities in its own company. A subsidiary of TradeCo is weaker: TradeCo owns NewCo's shares, so value moves between the two and TradeCo's creditors could look to that shareholding. A division gives no protection at all.
In every case, protection depends on behaviour as well as structure. Cross-guarantees, intercompany loans and shared contracts can undo it.
Selling one of the businesses
Subsidiary of HoldCo. HoldCo can sell NewCo, or TradeCo, under the substantial shareholding exemption (SSE) if it has held at least 10% for 12 months within the six years before the sale and the company sold is trading. No corporation tax on the gain, and the cash stays in the group to reinvest. See SSE versus BADR.
Sister company. You sell your shares personally. Business Asset Disposal Relief (BADR) can tax up to £1m of lifetime gains at 18%, with 24% above for higher-rate taxpayers. The cash is yours, but taxed now. The £1m limit is per person, not per company, so two sister companies don't give you two.
If you expect to sell one business and reinvest in the other, the group usually wins. If you expect to sell one business and retire on the proceeds, a sister company can be simpler.
Corporation tax rates
Under common control, the two companies are associated companies whichever way you hold them, so the £50,000 and £250,000 limits are shared. An active HoldCo adds one more associated company. The extra cost is limited: see does a holding company push up your corporation tax? and the associated companies calculator.
Bringing in other shareholders
New ventures often involve a partner, an investor or key staff.
- If outsiders hold more than 25% of NewCo, it isn't a 75% subsidiary, so group relief and no gain, no loss transfers stop. SSE still works while HoldCo holds at least 10%.
- A sister company can have a completely different shareholder base, which may suit a partner who has no interest in TradeCo.
Inheritance tax
Shares in HoldCo can qualify for Business Relief where its subsidiaries trade. Shares in a sister trading company can qualify in their own right. Either way, from 6 April 2026 the 100% rate applies only to the first £2.5m of qualifying property per person, across all your businesses. See the £2.5m Business Relief allowance.
If you don't have a holding company yet
Many owners reach this question with TradeCo owned directly. Inserting a holding company first, by a share-for-share exchange with HMRC clearance, then forming NewCo under it, gives you option 3. A typical insertion takes 4 to 6 weeks, so start before the new venture needs its first funding. See inserting a holding company and a holding company over two companies.
How to decide
Ask:
- Will the new business need funding from TradeCo's profits?
- Is it likely to make losses at first?
- Will it have different shareholders?
- Might either business be sold, and would you reinvest the proceeds?
- How closely is it linked to the existing trade?
If the answers to 1, 2 and 4 are mostly "yes", a HoldCo subsidiary is usually the better home. Test it in the Structure Lab, or 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.
