Insert a holding company without a tax bill on the way in.

Not normally. Where the conditions in section 135 TCGA 1992 are met, the swap is treated as a reorganisation rather than a sale. Your new holding company shares are treated as the same asset as your old trading company shares, so there is no disposal and no capital gains tax at the time of the exchange. The gain is simply deferred until you later sell or give away the holding company shares, subject to the anti-avoidance rule in section 137.

Section 135 applies if one of three cases is met. Case 1: the new company holds, or will hold as a result of the exchange, more than 25% of the old company's ordinary share capital. Case 2: the shares are issued under a general offer to the old company's members, made on a condition that would give the new company control. Case 3: the new company holds, or will hold, the greater part of the voting power. Inserting a holding company over 100% of a trading company usually meets Cases 1 and 3.

Yes. Because section 127 TCGA 1992 treats the original shares and the new holding as the same asset, your holding company shares inherit the base cost of your trading company shares. If you subscribed £100 for your shares in 2010, your holding company shares will also have a base cost of £100. The exchange does not uplift your base cost to today's value, so a later sale of the holding company shares is taxed on the full growth.

Yes. The holding company shares are treated as acquired when, and in the same way as, your original trading company shares were acquired. That matters for business asset disposal relief, where HMRC looks through the exchange when checking the two-year qualifying period, and for inheritance tax business relief, where the period of ownership of the earlier shares counts towards the two-year test. The conditions must still be met by the holding company after the exchange.

Finance Act 2026 replaced the old anti-avoidance test in section 137 TCGA 1992. The old test asked whether the exchange was for bona fide commercial reasons. The new test asks whether the arrangements have a main purpose of reducing or avoiding capital gains tax or corporation tax. If so, HMRC can make just and reasonable adjustments, which can include switching off share exchange relief. It applies to arrangements involving shares issued on or after 26 November 2025.

No. Under the old rules, a shareholder holding 5% or less of the company was protected from the section 137 anti-avoidance rule. Finance Act 2026 removed that protection for shares issued on or after 26 November 2025. Every shareholder in a share exchange is now within the main purpose test, so small and minority shareholders cannot assume they are outside it and should be included in the planning.

Only in narrow circumstances. The old rules continue where the clearance application was made before 26 November 2025, HMRC notified that it was satisfied, and the shares were issued before 26 January 2026 or, if later, within 60 days beginning with the day HMRC notified its decision. If the shares were not issued within that window, the new main purpose test applies and a fresh clearance under the new rules is usually needed.

Not of itself. HMRC's guidance says the rule does not bite where the advantage is simply the deferral that the share exchange rules are designed to give. Protecting cash from trading risk, adding a second business or preparing for succession are commercial aims. The risk lies in what else is planned, such as extracting value as capital or a sale structured to avoid tax. Clearance under section 138 confirms HMRC's view in advance.

For capital gains tax, section 135 does not strictly require a mirror image. For stamp duty share acquisition relief, it effectively does: after the exchange the holding company must have the same share classes, in the same proportions, held by each shareholder in the same proportions as before, or as nearly as may be. In practice most holding company insertions mirror the existing share structure exactly, and changes are made separately.

It's the contract under which the shareholders transfer their trading company shares to the new holding company, and the holding company issues its own shares to them in return. It records who transfers what, how many new shares each shareholder receives, completion steps and any conditions, such as obtaining HMRC clearance first. It's normally prepared by a solicitor, using the steps and share numbers agreed in the tax plan and set out in the clearance application.

Usually not. Merger relief under section 612 of the Companies Act 2006 applies where the issuing company secures at least a 90% equity holding in another company in exchange for its own equity shares. Where it applies, the premium on the new shares doesn't have to be credited to a share premium account, and the holding company can record its investment without that premium. A holding company acquiring 100% of a trading company normally qualifies.

Often not for the exchange itself. Where shareholders receive holding company shares in the same proportions as before, there is no disposal for capital gains tax, so a formal valuation is not usually needed for that purpose. A value may still be needed for other reasons: if shareholdings or classes change, if someone takes cash, or for stamp duty, inheritance tax or employment-related share rules. We'll tell you when a valuation is sensible.

No. What matters is proportions, not absolute numbers. For stamp duty share acquisition relief, each class must make up the same proportion of the holding company's shares as it did of the trading company's, and each shareholder must hold the same proportion of each class, or as nearly as may be. So issuing ten holding company shares for every trading company share can work, as long as the same ratio applies to everyone.

A section 169Q election treats the exchange as a disposal so BADR can be claimed straight away. The cost is that you pay capital gains tax now, at 18% from 6 April 2026, on a gain you haven't received in cash, and you use part of your £1m BADR lifetime limit. It covers all your shares in the exchange. For owner-managers who stay involved as officers or employees, the election usually isn't needed.

It's possible, but it complicates things. If the holding company issues different classes from those in the trading company, stamp duty share acquisition relief is likely to fail, because the share classes and proportions must match. New classes can also raise value-shifting, settlements and main purpose questions. A cleaner route is often to complete a mirror-image exchange first and then reorganise the holding company's shares as a separate, properly considered step.

Cash changes the analysis. The shareholder receiving cash makes a part disposal, and stamp duty share acquisition relief fails because the consideration must consist only of shares. There may also be transactions in securities and main purpose issues. Common alternatives include the trading company buying back the exiting shareholder's shares before the exchange, or the other shareholders buying them, each with its own tax treatment. The order of steps matters.

Section 135 can apply to an exchange for debentures, including loan notes, so capital gains tax can still be deferred. But loan notes are not shares, so stamp duty share acquisition relief is lost. Loan notes issued to shareholders on a holding company insertion can also look like a way of taking value out as capital rather than income, which is exactly what the anti-avoidance rules target. Any loan notes need careful justification.

Yes, once the holding company owns at least 75% of the trading company, and in a typical insertion it owns 100%. From that point they form a capital gains group, so assets can move between them at no gain and no loss, and a group for corporation tax loss relief, provided the profit and asset entitlement tests are also met. They also count as associated companies for the whole of any accounting period in which they are linked, even briefly.

Yes, but employee shareholders need extra thought. Shares acquired by reason of employment are within the employment-related securities rules, and swapping them for holding company shares can bring reporting obligations and, if value shifts, possible income tax charges. Share options, including EMI options, over trading company shares also need attention, because they don't automatically convert into options over holding company shares. We review these before finalising the steps.

The holding company and the trading company become associated companies, so the £50,000 and £250,000 corporation tax limits are each divided by two, unless the holding company is a passive holding company under section 18F CTA 2010. A holding company that holds cash, has its own costs or charges management fees usually isn't passive. For a trading company with profits between £25,000 and £250,000, this can increase the corporation tax bill.