Should I set up a holding company?

In short: A holding company separates spare cash or a future sale from the trade. It can raise this year's Corporation Tax (GOV.UK: Marginal Relief). Taxley prepares and files a company's Company Tax Return (CT600) for £39.95 with micro-entity accounts, then files the accounts at Companies House once the return is paid and the accounts are finished.

Take the 30-second check to see whether Taxley fits your company, or see the price for your company.

Key facts (checked on 21 October 2026)

Should you set up a holding company?

A holding company tends to pay when you want spare cash, or the shares in the trade, held outside the company that deals with customers. It tends not to pay when the only aim is a lower Corporation Tax bill on this year's profit, because the parent usually counts as an associated company.

A dividend from a payer that qualifies as the parent's 51% subsidiary is left out of augmented profits, so the dividend itself does not move the rate band (CTA 2010 s.18L). The band moves when the parent counts as associated. A later sale of the subsidiary can fall outside Corporation Tax if the substantial shareholding conditions are met. Selling the trade's assets does not. Moving cash separates it in law. It is not a relief. A holding company tends to suit a planned share sale, or cash moved out with the extra tax paid. A single company tends to suit one trade whose cash can stay put. See associated companies, dividends a company receives and how marginal relief is worked.

Are dividends from a subsidiary exempt from Corporation Tax?

A dividend from a UK trading subsidiary to its holding company is often exempt where an exemption in Corporation Tax Act 2009 Part 9A applies. Many owner-managed groups look first at section 931B. The dividend does not enter the parent's augmented profits when the payer qualifies as its 51% subsidiary.

HMRC includes distributions in the charge only if Part 9A does not exempt them (INTM651030). Section 931B exempts a dividend when the payer is resident only in the UK or a qualifying territory, the distribution is not an excluded type, nobody outside the UK gets a deduction for it, and it is not part of a tax-advantage scheme (CTA 2009 s.931B). "Small" there is the enterprise test in section 931S, not the accounts size test. A company that is not small uses section 931D, which points to the exempt classes. A dividend from a 51% subsidiary is left out of augmented profits, so it does not change marginal relief by itself (CTA 2010 s.18L). For that status, the parent must also be entitled to more than half of the payer's distributable profits and winding-up assets (CTA 2010 s.18M). Owning a subsidiary that trades still associates the companies, unless the non-trading rules ignore the parent.

When is a gain on selling the subsidiary exempt?

Where the substantial shareholding exemption applies, a gain on the subsidiary's shares is not chargeable and a loss is not allowable. For a disposal on or after 1 April 2017 the seller need not itself be a trading company. The company sold must still meet the trading conditions, and the holding must be substantial for the right period.

A substantial shareholding is at least 10% of the ordinary share capital and at least 10% of the profits and assets available to equity holders, held for a continuous 12 months. For a disposal on or after 1 April 2017, that period must end no more than five years before the sale (HMRC CG53070). A parent that only holds shares can be the seller (HMRC CG53100). The company sold must be a qualifying company throughout the qualifying period (HMRC CG53104). From 1 April 2017 the test immediately after the sale applies only in narrow cases, including a buyer connected with the seller. Take advice before treating a sale as exempt. No claim is required (HMRC CG53005). A sale of assets, rather than shares, is outside it.

Does a holding company keep spare cash away from the trading company's risks?

Cash paid up to a holding company sits in a different company from the one that trades. That separation is not a Corporation Tax relief, and it does not by itself cut the tax on the trading profit. It matters when you want the cash outside the company that has the contracts and the creditors.

GOV.UK says a limited company is legally separate from the people who own it (GOV.UK: set up a business). The parent is a member of the subsidiary, and that member's liability is limited to any amount unpaid on its shares (Companies Act 2006 s.3). Cash paid up to the parent is the parent's asset. Cash left behind is still the trading company's, so that company's creditors claim against it. Separation happens only when the money is paid. Personal guarantees and security are outside this guide, so take advice before relying on them. The tax cost of parking the cash in the parent is the associated-company figure below, for financial year 2026.

How much extra Corporation Tax does one associated company add to £60,000 of profit?

On these assumptions, for financial year 2026, one associated company adds £1,875. A single company with £60,000 of taxable profit pays £12,150. The same profit, with the £200,000 of cash held in a parent that counts as associated, pays £14,025. A share-only parent that meets the passive tests leaves the bill at £12,150.

The period is 12 months inside financial year 2026, from 1 April 2026 to 31 March 2027. Taxable total profits and augmented profits are both £60,000, with no non-group exempt dividends. The trading company is not a close investment-holding company. The fraction is 3/200 (HMRC rates for 2026, CTA 2010 s.18B). Tax at 25% is £60,000 × 25% = £15,000. With no associate, relief is 3/200 × (£250,000 − £60,000) = £2,850, so the bill is £15,000 − £2,850 = £12,150. With one associate the limits halve to £25,000 and £125,000 (CTA 2010 s.18D). Relief is 3/200 × (£125,000 − £60,000) = £975, so the bill is £15,000 − £975 = £14,025, which is £1,875 more. £60,000 is above both lower limits, so 19% does not apply. The £200,000 is retained cash, not this year's profit. In the share-only column, no cash was paid to the parent; it remains in the trading company.

A company with no trade or business is ignored (CTA 2010 s.18E). If a holding company carries on a business of making investments, section 18F treats it as not carrying on a business only when it has no assets but shares in its 51% subsidiaries, no income but exempt dividends that it pays on, no chargeable gain, no deductible management expenses and no deductible donation (CTA 2010 s.18F). Cash kept in the parent fails that safe harbour, but whether the parent carries on a business remains fact-sensitive. The cash-holding parent in the example is expressly assumed to count. A close investment-holding company cannot claim marginal relief (GOV.UK: Marginal Relief). Its status turns on whether it exists wholly or mainly for permitted purposes, which include holding shares in qualifying companies (CTA 2010 s.18N). Take advice if the facts are close. Who else counts is in associated companies and the thresholds.

Can two companies share a loss through group relief?

For ordinary group relief, excluding the separate consortium rules, two companies can share a current-period loss where one is a 75% subsidiary of the other, or both are 75% subsidiaries of a third company, and both are UK related. The £60,000 example has no loss to move, so group relief does not reduce that bill.

Shares alone are not enough. The parent must also be entitled to at least 75% of profits available to equity holders and 75% of assets on a winding up, and shares held as trading stock are ignored (CTA 2010 s.151 and s.152). Both companies must be UK related, meaning UK resident or otherwise within the charge to Corporation Tax (HMRC CTM80150). It moves losses and some other amounts. It is not one combined return. It needs consent, and it cannot exceed the lower of the surrenderable amount and the claimant's available total profits (HMRC CTM80105). A 75% stake in a trading company also associates the companies, so the limits are shared that year. Consortium relief is separate. The rate bands are in marginal relief.

What extra filings does a second company add each year?

Each company prepares its own individual accounts. Each must file its own Company Tax Return if HMRC issues a notice to deliver one, even where the parent pays no Corporation Tax. A parent may also have to prepare group accounts unless an exemption applies. A holding company that receives a dividend is not dormant.

A notice to deliver still requires a return when no tax is due. The return is normally due 12 months after the period, and the tax nine months and one day after the end (GOV.UK: Company Tax Returns). Each company prepares its own accounts unless exempt (Companies Act 2006 s.394). The small companies regime can exempt a parent from group accounts where the group has no ineligible member (Companies Act 2006 s.399). Companies House does not count its own fees, late penalties or formation share money as significant transactions (GOV.UK: annual accounts). A dividend is not ignored. Other income, or interest, means the company is not dormant for Corporation Tax (GOV.UK: dormant for Corporation Tax). Taxley doesn't file the confirmation statement, which each company sends to Companies House itself.

Can Taxley file a holding company and its trading subsidiary?

Taxley (taxley.co.uk), UK online software that prepares and files the Company Tax Return (CT600) with HMRC and the annual accounts with Companies House, can file each eligible company in the pair. Each return has its own fee. It does not prepare Self Assessment, partnership returns, VAT or payroll.

You pay £39.95 for micro-entity accounts or £129 for small-company accounts. Where the parent is an investment company, the return uses small-company accounts at £129, with no capital allowances or group relief. Taxley files that company's accounts at Companies House once the return is paid and the accounts are finished. You enter the associated-company number yourself. Taxley does not decide which companies count, and some non-trading holding companies do not count. The number goes in box 326, which divides both limits by that number plus one. A dividend from a payer that qualifies as a 51% subsidiary stays out of the non-group dividend figure. See associated companies and the thresholds.

Group relief between UK companies in a 75% group can be claimed or surrendered. Consortium relief, and group relief with a company outside the UK, are outside what Taxley files. So is a loss brought forward that a company in a group wants to use. On a sale of shares, Taxley asks whether you say the substantial shareholding exemption applies. Where you confirm both conditions on a holding it can calculate, it treats the disposal as exempt. It does not decide the conditions. A sale of a company you owned more than half of at any time in the 12 months before sale is outside that calculator, so you enter the gain or loss. Taxley is software, not an adviser. Take the 30-second check to see whether Taxley fits your company.

Frequently asked questions

Does one associated company always halve the rate limits?

No. The limits are divided by the number of associated companies plus one, so one associate halves the £50,000 and £250,000 figures. A company with no trade or business in the period is ignored. Section 18F also protects a qualifying passive holding company. Cash left in the parent fails its tests.

Does the parent pay tax on a dividend from its UK subsidiary?

Often there is no Corporation Tax where a Part 9A exemption applies, including section 931B when its conditions are met. A dividend from a payer that qualifies as the parent's 51% subsidiary is also left out of augmented profits, so it does not by itself change marginal relief. Bank interest received by the parent is still taxable.

Is a claim needed for the substantial shareholding exemption?

No claim is needed. Where the conditions are met, the gain is not chargeable and a loss is not allowable. From 1 April 2017 the seller need not be trading, but the company sold must meet the trading test, and the 10% holding must cover the manual's 12-month period. Take advice on the facts.

Does owning both companies yourself create a group relief group?

Not by itself. Two companies are in a group for this relief only where one is a 75% subsidiary of the other, or both are 75% subsidiaries of a third company, with the profit and asset tests as well. Two companies you own personally, neither owning the other, are not that group.

Can a share-only holding company file as dormant?

Only if that year had no significant transaction. Companies House does not ignore a dividend received. For Corporation Tax, other income such as investments means the company is not dormant, and getting interest counts as trading on that test. A parent that has received the cash is outside the dormant case.

Does the £200,000 of cash change the £60,000 profit?

Not in this example. The £60,000 is the year's taxable profit and the £200,000 is cash already retained. The comparison keeps the profit fixed and changes only where the cash sits, and whether the parent counts as associated. A real dividend must also be one the company can lawfully pay.

General information, not personalised tax or accounting advice. Rates and rules checked on 21 October 2026.