Should you put a holding company in place before selling?

Putting a holding company above your trading company can be a useful step before a sale. It can let you keep cash or other assets, sell through a company using the Substantial Shareholding Exemption (SSE), and choose when to take money out. But it is not right for everyone. If you want the proceeds in your own hands, selling personally with Business Asset Disposal Relief (BADR) is often simpler and can cost less tax overall.

What a holding company is

A holding company is a new company that owns the shares in your trading company. You own the holding company, rather than owning the trading company directly.

How it is put in place

It is usually done through a share-for-share exchange:

1. A new company is set up.
2. You transfer your shares in the trading company to it.
3. In return, it issues you shares in itself.

Where the conditions are met, the exchange usually defers your gain. Your new shares are treated as the same asset as your old ones, so no capital gains tax arises at the time.

The exchange must be for genuine commercial reasons and not mainly to avoid tax. That is why HMRC clearance under section 138 TCGA 1992 is commonly obtained before going ahead.

Why owners do it

Keeping assets or cash. Cash or other assets can often be moved up to the holding company before a sale. The buyer then buys a cleaner trading company, and you keep what it does not want.

Selling a subsidiary using SSE. If the holding company sells the trading company, the gain can be exempt from corporation tax under SSE. Broadly, the holding company must have held at least 10% of the shares for a continuous 12 months within the six years before the sale. The company being sold must be a trading company, or the holding company of a trading group.

Flexibility over proceeds. With proceeds in the holding company, you can reinvest them, fund a new venture or take them out over time, rather than receiving everything at once.

The trade-offs

Selling through a company is not the same as selling personally. The main points:

• The money stays in the company. After an SSE sale, the proceeds sit in the holding company, not with you.
• Taking it out has its own tax cost. Dividends are taxed as income. A liquidation can sometimes give capital treatment, but anti-avoidance rules can apply, and BADR may not be available on that later step.
• Two layers to think about. The tax saved at company level only stays saved if you leave the money in the company, or extract it efficiently.

Compare that with selling personally:

• You pay capital gains tax once, on completion.
• BADR can give an 18% rate on up to £1m of lifetime qualifying gains, for disposals from 6 April 2026.
• Gains above that are taxed at 18% or 24%, depending on your other income.
• The cash is then yours, with no further tax to extract it.

So the right answer depends on what you plan to do with the money. If you want to reinvest through a company, a holding company can make sense. If you want the cash personally, selling yourself is often better.

BADR in the new structure

Inserting a holding company does not necessarily affect BADR if you later sell the holding company's shares. A holding company of a trading group can meet the trading test. You still need to meet the 5% shares and votes, 5% economic entitlement and officer or employee conditions for the two years before the sale.

Be careful about cash. If the holding company builds up large cash balances or investments, the group may no longer count as trading, which can affect both BADR and SSE.

HMRC clearance

Two clearances are commonly considered:

• Section 138 TCGA 1992, confirming the share-for-share exchange is for genuine commercial reasons.
• Section 701 ITA 2007, confirming the transactions in securities rules should not apply. These rules can tax as income what would otherwise be capital.

HMRC responds to the main statutory clearances within 30 days of a complete application. Clearance only covers the facts you disclose, so the application needs to be full and accurate.

Timing and anti-avoidance

Timing matters for three reasons:

• The SSE holding period. A holding company inserted shortly before a sale may not have held the shares long enough.
• HMRC scrutiny. Restructures made with a sale in view attract closer attention. Clearly commercial reasons matter.
• Reliefs and stamp duty. Some reliefs are not available once arrangements for a sale are in place, and some stamp duty reliefs can be withdrawn after a sale soon afterwards.

The earlier the holding company is in place, the more options you keep and the lower the risk.

What to do

• Decide whether you want the proceeds personally or in a company.
• Model the after-tax result of both routes, including the cost of taking money out later.
• Check trading status and the SSE holding period against your likely sale date.
• Apply for HMRC clearance before the exchange, and well before a sale.

This article is general information, not advice. Tax rules change and their effect depends on your circumstances. Please speak to us before acting.