Selling and exits
Selling a subsidiary or selling the group: SSE versus BADR, with a worked example
Should HoldCo sell the subsidiary under SSE, or should you sell HoldCo with BADR? A worked example at 2026/27 rates shows when each route comes out ahead.
By Omar Aswat CTA ·
If your business sits under a holding company (HoldCo), there are two basic ways to sell it:
- HoldCo sells the trading company (TradeCo). HoldCo's gain can be exempt under the substantial shareholding exemption (SSE), and the cash stays in HoldCo.
- You sell your HoldCo shares. You pay capital gains tax, with Business Asset Disposal Relief (BADR) at 18% on up to £1m of lifetime gains, and the cash is yours.
Neither is always better. The right answer depends on what the money is for. This article works through a single example, at 2026/27 rates, so you can see the trade-off clearly.
The two reliefs in one table
| SSE | BADR | |
|---|---|---|
| Who sells | A company (HoldCo) | An individual (you) |
| What's sold | Shares in a trading company or holding company of a trading group | Shares in a trading company or holding company of a trading group |
| Holding condition | At least 10% for a continuous 12 months starting within the 6 years before the sale | At least 5% (personal company) for the 2 years before the sale |
| Other conditions | The company sold must be trading throughout the relevant period | You must be an officer or employee of a group company throughout the 2 years |
| Tax on the gain | Nil corporation tax | 18% on the first £1m of lifetime gains; 24% above for higher-rate taxpayers |
| Where the cash ends up | In HoldCo | With you |
The investing company condition, which once required HoldCo itself to be trading, was removed from 1 April 2017. HoldCo can be a pure holding company, or hold investments, and still use SSE.
The worked example
This is an illustration, not a client example. The assumptions:
- HoldCo owns 100% of TradeCo, a trading company. HoldCo has no other assets.
- A buyer will pay £3,000,000, either for TradeCo's shares (from HoldCo) or for HoldCo's shares (from you).
- You hold all of HoldCo. Your base cost, carried through from your original TradeCo shares by the share exchange, is £1,000. HoldCo's own base cost in TradeCo doesn't affect the answer, because SSE exempts the whole gain.
- You are an additional-rate taxpayer from other income, you haven't used any BADR before, and all conditions for both reliefs are met.
- We ignore transaction costs and degrouping charges.
Route A: you sell HoldCo
| Step | Amount |
|---|---|
| Sale proceeds | £3,000,000 |
| Less base cost | (£1,000) |
| Gain | £2,999,000 |
| First £1,000,000 at 18% (BADR) | £180,000 |
| Remaining £1,999,000, less £3,000 annual exempt amount = £1,996,000 at 24% | £479,040 |
| Capital gains tax | £659,040 |
| Cash in your hands | £2,340,960 |
That's an effective rate of about 22%.
Route B: HoldCo sells TradeCo under SSE
| Step | Amount |
|---|---|
| Sale proceeds received by HoldCo | £3,000,000 |
| Corporation tax on the gain (SSE applies) | £0 |
| Cash in HoldCo | £3,000,000 |
HoldCo now has £659,040 more to work with than you would have personally under Route A. The question is what happens next.
What happens to the cash in HoldCo
| Next step | Tax | Cash in your hands |
|---|---|---|
| B1: keep it in HoldCo and reinvest | None now; tax when eventually extracted | £0 now; £3,000,000 working in HoldCo |
| B2: pay it all out as a dividend in one year | £500 at 0%; £2,999,500 at 39.35% = £1,180,303 | £1,819,697 |
| B3: liquidate HoldCo, BADR available | Same as Route A: £659,040 (plus liquidation costs) | about £2,340,960 |
| B4: liquidate HoldCo, no BADR | (£2,999,000 less £3,000) at 24% = £719,040 | about £2,280,960 |
What the numbers say
- If you want the cash personally, Route A is simplest and usually best. Paying the proceeds out as a dividend (B2) costs about £521,000 more in this example.
- If the money will be reinvested in another business, property or investments through the company, Route B wins clearly. HoldCo starts with £3m rather than £2.34m, and tax arises only when money is eventually taken out, perhaps gradually at lower rates, or in a later generation.
- A liquidation after an SSE sale (B3 or B4) can get close to Route A, but adds cost, delay and risk. BADR can be available for a distribution within 3 years of HoldCo ceasing to be the holding company of a trading group, if the conditions were met for the 2 years before that. And a targeted anti-avoidance rule (ITTOIA 2005 s396B) treats a liquidation distribution as income if you carry on a similar trade or activity within two years and a main purpose is avoiding income tax. The transactions in securities rules can also apply.
Try your own numbers in the sale structure calculator.
A second example: selling one business, keeping another
Often HoldCo owns two trading companies. Suppose TradeCo B is sold for £2,000,000 (with a base cost of £1,000 if you owned it directly) and wants to put the money into expanding TradeCo A.
| B owned by HoldCo (SSE) | B owned by you directly (BADR) | |
|---|---|---|
| Tax on sale | £0 | £180,000 + (£996,000 x 24%) = £419,040 |
| Cash available to reinvest | £2,000,000 | £1,580,960 |
| How it reaches TradeCo A | HoldCo lends or subscribes | You lend or subscribe from taxed cash |
Here the group structure is worth £419,040 of extra capital in the business. It's the clearest case for SSE, and one of the main reasons owners put a holding company over two companies.
Points that change the answer
SSE needs HoldCo's own 12 months. The holding condition is HoldCo's, measured from when HoldCo acquired the shares. A holding company inserted shortly before a sale may not have held TradeCo long enough. And inserting one with a sale in view raises questions under the new main purpose test and the transactions in securities rules. See the FA 2026 changes.
TradeCo must be trading. For SSE, the company being sold must be a trading company (or holding company of a trading group) throughout the period. Surplus cash in TradeCo can threaten that. See how much cash is too much.
HoldCo must be a trading group for BADR. Under Route A, the test is applied to HoldCo and its subsidiaries together. Investments, let property or cash held in HoldCo count.
Degrouping charges. If TradeCo took assets from another group company within the last 6 years, a degrouping gain arises when it leaves. It's added to HoldCo's sale proceeds, so SSE covers it too.
Warranties and retentions. On Route B the buyer's claims are against HoldCo, so the buyer may want the proceeds to stay in HoldCo for a period. That can suit a reinvestment plan anyway.
Inheritance tax. Shares in a trading group can qualify for Business Relief. Cash after a sale generally doesn't, whether it's in HoldCo or in your bank account. A binding contract for sale stops relief from the date of the contract.
Which route?
If the proceeds are for your retirement, Route A is usually the starting point. If they're for the next venture, the family's long-term investments or a further acquisition, Route B usually comes out ahead. Many exits combine both over time.
See selling through a holding company, the substantial shareholding exemption and BADR and holding companies. For the commercial side of a sale, our sister firm Transaction Tax Partners (opens in a new tab) advises on pre-sale planning.
Then 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.
- 1HoldCo has owned at least 10% of TradeCo B for a continuous 12 months in the six years before the sale.
- 2TradeCo B (with any subsidiaries) has been a trading company throughout that period.
- 3HoldCo sells TradeCo B. The gain is exempt; the cash stays in HoldCo.
