Putting a holding company above one or more trading companies lets profits move up the group as tax free dividends, lets losses and assets move between companies, and can make a later sale of a subsidiary exempt from corporation tax under the substantial shareholding exemption. The costs are extra compliance and the fact that every company under common control shares the small profits rate and marginal relief limits.

Why do owner managed businesses use a holding company?

The usual reasons are to separate valuable assets, such as property or cash, from trading risk; to run more than one business under common ownership; to prepare a subsidiary for sale; or to give the shareholders a single company through which to hold surplus profits. The tax rules below decide whether the structure works as intended. Most of them depend on the holding company owning at least 51% or 75% of each subsidiary, so the shareholdings need to be set up with the relevant test in mind.

Are dividends from subsidiaries taxed in the holding company?

Normally not. Distributions received by a company are within the charge to corporation tax only if they are not exempt, and CTA 2009 Part 9A is designed so that the great majority are exempt (INTM651020).

  • For a small company, a dividend is exempt if the payer is resident in the UK or a qualifying territory, the payment is not interest treated as a distribution, no foreign deduction is given for it and it is not part of a tax advantage scheme (s931B, INTM652010).
  • For other companies, a dividend is exempt if it falls into one of five exempt classes, which include distributions from controlled companies and distributions on non redeemable ordinary shares, subject to anti avoidance rules (INTM653020).

So a trading subsidiary can pay its taxed profits up to the parent without further corporation tax. The parent can then lend, invest or pay dividends to its own shareholders, who are taxed only when money leaves the group. The parent’s own accounting for its investments is explained in investments in subsidiaries.

Can the group sell a subsidiary without corporation tax?

Yes, if the substantial shareholding exemption applies. A gain on a company’s disposal of shares is not a chargeable gain where two conditions are met (CG53005):

  1. the selling company has held at least 10% of the ordinary share capital for a continuous 12 month period; after a holding falls below 10% it continues to count for five years for disposals from 1 April 2017 (CG53078);
  2. the company being sold meets the investee company requirement, broadly that it is a trading company or the holding company of a trading group or subgroup.

No claim is needed. The trading condition for the selling company was removed for disposals on or after 1 April 2017 (CG53102). The flip side is that a loss on a disposal that meets the conditions is not an allowable loss (CG53005).

The exemption does not help with a property investment subsidiary, because it is not a trading company. A gain on selling those shares is a chargeable gain of the holding company, computed as described in capital gains in a company.

Without a holding company, the individual shareholders would sell the trading company themselves and pay capital gains tax. With one, the parent can sell exempt, but the proceeds are then inside the parent and are taxed again as income when paid out to the shareholders.

How do losses and assets move around a group?

Companies form a group for group relief where one is a 75% subsidiary of the other, or both are 75% subsidiaries of a third company, looking at ordinary share capital and also entitlement to profits and assets (CTM80151). Trading losses, excess management expenses and certain other amounts can then be surrendered between UK companies in the group.

For chargeable gains, a group is a principal company and its 75% subsidiaries that are also effective 51% subsidiaries; assets pass between members on a no gain, no loss basis (CG45100). Intangible assets such as goodwill and IP can similarly be transferred on a tax neutral basis (CIRD40220).

The catch is the degrouping charge. If a company leaves the group owning an asset it received from another member within the previous six years, it is treated as having sold and reacquired the asset at market value when it received it (CG45405). Where the company leaves because its shares are sold on or after 19 July 2011, the degrouping gain is added to the sale proceeds of the shares instead; if the share sale qualifies for the substantial shareholding exemption, the whole gain, including the degrouping element, is exempt (CG45420).

How does a holding company affect the small profits rate?

Each company’s 50,000 pound lower limit and 250,000 pound upper limit for marginal relief is divided by the number of associated companies plus one. A company with three associated companies has limits of 12,500 pounds and 62,500 pounds (marginal relief guidance). Companies are associated if one controls the other or both are under common control (CTM03940).

Two exclusions limit the damage:

  • an associated company that has not carried on any trade or business at any time in the accounting period is ignored (CTM03940);
  • a passive holding company is not counted. That requires the parent to carry on no trade, to have one or more 51% subsidiaries and to have no assets other than shares in them, no income other than dividends that it passes on to its shareholders, no chargeable gains, no management expenses and no qualifying charitable donations in the period (s18F, CTM03945).

A parent that charges management fees, holds cash or property, or incurs its own costs is not passive and counts as an associated company. More detail is in associated companies.

Is there a close investment holding company risk?

A close company that exists mainly to hold investments pays the 25% main rate on all its profits. However, s18N(2)(c) specifically excludes a company that exists wholly or mainly to hold shares in, or lend to, trading or property letting subsidiaries, even if there is only one subsidiary (CTM60760). The risk arises where the parent accumulates a large portfolio of its own, or its subsidiaries are sold and it is left with cash. See close investment holding companies.

A holding company with no trade is usually a company with investment business and can deduct management expenses for managing its investments, but not the costs of running its subsidiaries’ trades (CTM08060, CTM08180).

How does it work in practice?

Illustration only. Mr Z owns Zeta Holdings Ltd, which owns 100% of Zeta Trading Ltd and 100% of Zeta Property Ltd. Zeta Property lets shops to unconnected retailers. For the year to 31 March 2027:

  • Zeta Holdings charges no management fee and simply passes dividends to Mr Z, so it may be a passive company and not counted. Each subsidiary then has one associated company and limits of 25,000 pounds and 125,000 pounds.
  • If Zeta Holdings starts charging a management fee, it becomes an associated company and each company’s limits fall to one third.
  • Zeta Trading pays a dividend of 100,000 pounds to Zeta Holdings, which is exempt.
  • If Zeta Holdings later sells Zeta Trading after holding it for over 12 months, the gain should be exempt under the substantial shareholding exemption; a sale of Zeta Property would not be.

What mistakes come up most often?

  • Assuming the holding company does not count as associated while it charges fees, holds a bank account with interest, or incurs costs.
  • Expecting the substantial shareholding exemption on the sale of a property or investment subsidiary.
  • Moving a property into a subsidiary shortly before selling the subsidiary and overlooking the six year degrouping window.
  • Leaving sale proceeds in the parent for years so that it becomes a close investment holding company.
  • Treating the costs of the subsidiaries’ trades as the parent’s management expenses without recharging them.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.