Putting a holding company on top of your startup

When a holding company helps a startup

Running more than one business

A group lets a second activity with its own risks, such as a regulated product or an overseas operation, sit in its own company under the same owners, and that company's debts stay with it unless another group company guarantees them. For corporation tax, two 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, under section 152 of the Corporation Tax Act 2010. A loss in one group company can then be set against a profit in another.

Holding intellectual property apart from the trading company

Some groups keep the software, patents, trade marks and brand in a company that does not trade, which licenses them to the trading company. If the trading company later fails, the intellectual property belongs to a different company. Moving intellectual property covered by the corporate intangibles rules from one group company to another is tax-neutral under section 775 of the Corporation Tax Act 2009, so no taxable profit arises on the transfer, provided the asset is within UK corporation tax both before and after the move. Put the licence in writing and set the fee on commercial terms.

Buying other businesses

A holding company can buy another business and keep it as a sister company of the trading company, so the business bought keeps its own liabilities. The sellers can take shares in the holding company as part of the price. Dividends paid up to the holding company are in most cases exempt from corporation tax, as HMRC's International Manual explains. When the holding company later sells a subsidiary, the gain can be exempt under the substantial shareholding exemption. That needs a holding of at least 10% of the ordinary share capital, kept for a continuous 12 months that ended no more than five years before the sale, as set out at CG53070, and the company sold must be a trading company or the holding company of a trading group.

Preparing for a US investor or a listing

A company preparing to list its shares, or to raise from a US investor who wants a US parent, often reorganises under a new holding company first. The US version is covered in our guide to moving a UK startup under a US parent company.

Founder personal holding companies

A founder can hold their shares through a company of their own. Dividends from the startup are then received by the founder's company, usually free of corporation tax, and the founder pays income tax only when money is taken out of that company. On a sale of the startup, the founder's company can qualify for the substantial shareholding exemption on the tests above.

Two rules limit this. The first is the share exchange relief itself. Under CG52523, the exchange is free of capital gains tax only where the company receiving the shares ends up with more than a quarter of the ordinary share capital or the greater part of the voting power, or acquires them under a general offer. A founder with 20% of the startup who moves that stake into their own company makes a disposal at market value and may owe capital gains tax on it.

The second is fundraising. SEIS and EIS need the company issuing the shares to stay independent for three years after each share issue. Under section 185 of the Income Tax Act 2007, it must not be a 51% subsidiary of another company, and must not be under the control of another company, alone or together with people connected with that company. A founder is connected with their own holding company. A founder who controls the startup through their company and their direct shares together therefore makes it ineligible for SEIS and EIS. Check control across every founder's company and direct holding before any shares move.

How a share-for-share exchange works

1. Incorporate the new company. Its only issued shares should be the subscriber shares taken on incorporation. Registering a private company online costs £100 under the Companies House fees.
2. Mirror the share capital. The new company issues the same classes of share, with the same rights, to the same shareholders in the same proportions. The stamp duty relief and the SEIS and EIS rules below both depend on this.
3. Apply for HMRC clearance. One application can cover every clearance needed, as long as it lists each provision. Send it to the Clearance and Counteraction Team at reconstructions@hmrc.gov.uk, as set out in HMRC's statutory clearance guidance. HMRC replies within 30 days of receiving the application, or within 30 days of receiving any further information it asks for.
4. Complete the exchange. The shareholders sign a share exchange agreement and stock transfer forms, the new company issues its shares, and both companies update their registers of members. The new company reports the allotment to Companies House within one month, under section 555 of the Companies Act 2006.
5. Claim stamp duty relief. Email the signed stock transfer forms and the claim to HMRC's Stamp Office, as described below.
6. Deal with share options. If the trading company has granted EMI options, agree replacement options over the holding company's shares within the time limit described below.

Capital gains tax and HMRC clearances

Under section 135 of the Taxation of Chargeable Gains Act 1992, an exchange that meets the conditions in CG52523 is not treated as a disposal. Each shareholder's new shares take over the cost and acquisition date of their old shares, and capital gains tax is due only when the new shares are eventually sold. A holding company acquiring all the shares of the trading company meets those conditions.

The relief is subject to an anti-avoidance rule in section 137. Finance Act 2026 rewrote that rule for shares issued on or after 26 November 2025. It now applies where the main purpose, or one of the main purposes, of the arrangements is to reduce or avoid capital gains tax or corporation tax, and the tax advantage is then counteracted. Under section 138, a company can ask HMRC in advance to confirm that the rule does not apply, and an answer given on full and accurate facts protects the shareholders.

The same application normally asks for clearance under the transactions in securities rules. Section 701 of the Income Tax Act 2007 lets individual shareholders ask HMRC to confirm that it will not issue a notice taxing the transaction as income, and section 748 of the Corporation Tax Act 2010 does the same for shareholders that are companies. These rules matter most where any shareholder receives cash or other value alongside the new shares.

Stamp duty

A transfer of shares on a stock transfer form normally carries stamp duty at 0.5% of the consideration where it is over £1,000, as gov.uk explains. In a share-for-share exchange the consideration is the value of the new shares, so the charge would be 0.5% of the value of the whole company.

Section 77 of the Finance Act 1986 removes that charge where all of these conditions are met:

• The holding company acquires the whole issued share capital of the trading company.
• The only consideration is new shares in the holding company, issued to the trading company's shareholders.
• Afterwards, every former shareholder is a shareholder of the holding company, with shares of the same classes in the same proportions as before.
• The acquisition is made for genuine commercial reasons, and avoiding stamp duty or income, corporation or capital gains tax is not a main purpose of it.
• No disqualifying arrangements exist when the transfer is signed. Under section 77A, these are arrangements meant to give a person or group control of the holding company, other than a person who held at least 25% of the trading company throughout the previous three years.

The relief has to be claimed. Email the signed and dated stock transfer forms, a claim letter, and a list of the shareholders and their holdings by class to stampdutymailbox@hmrc.gov.uk, with the type of relief in the subject line, as set out on gov.uk. HMRC's Stamp Taxes on Shares Manual includes a suggested claim letter. Send it within 30 days of signing the forms, which is HMRC's deadline for sending a stock transfer form in, under the stamp duty on shares guidance.

Keeping your investors' SEIS and EIS relief

Swapping SEIS or EIS shares for shares in another company would normally count as a disposal. A disposal within three years of the share issue withdraws the investor's income tax relief, and the trading company would also fail the independence requirement as soon as it became a subsidiary. Two sections protect investors from both results: section 247 of the Income Tax Act 2007 for EIS, and section 257HB for SEIS. They apply only where all of these conditions are met:

• The new company had issued no shares other than its subscriber shares before the exchange.
• It acquires all the shares in the trading company, and the consideration is wholly new shares of the corresponding class, issued in proportion to each shareholder's holding.
• Before the new shares are issued, the trading company had issued its SEIS or EIS shares and HMRC had authorised the compliance certificates for them, which are the SEIS3 or EIS3 forms investors use to claim.
• Before the new shares are issued, HMRC had confirmed that the exchange is for genuine commercial reasons and is not part of a tax avoidance scheme. This uses the same section 138 procedure, and the application lists section 247(1)(f) or section 257HB as a clearance sought.

Where the conditions are met, the relief attaches to the new shares as though they were issued on the date the old shares were issued, and the three-year period carries on running. HMRC's VCM16030 and VCM37030 add that the treatment does not cover two existing companies being put under one new holding company, or an established company taking over the business.

For later rounds, the holding company becomes the company that issues SEIS or EIS shares. It can do so as the parent of a trading group, provided each subsidiary is a qualifying subsidiary under section 191 and the trade is carried on by the parent or a subsidiary at least 90% owned by it, under section 183. Apply for advance assurance in the name of the holding company. Our SEIS and EIS page covers advance assurance and compliance statements.

EMI share options

When the trading company becomes a 51% subsidiary, its EMI options become options over shares in a subsidiary, which is a disqualifying event. It is not one if replacement options over the holding company's shares are granted under the company reorganisation rules, as HMRC's ETASSUM57080 explains. Under Part 6 of Schedule 5 to the Income Tax (Earnings and Pensions) Act 2003, the replacement options must be granted within six months of the holding company taking control. The shares under them must have the same total market value, and the employee must pay the same total price. The holding company must meet the EMI independence and trading activities requirements when they are granted. Our EMI share options page covers setting up and running a scheme.

When to put a holding company in place

Before the first funding round is the simplest time. No SEIS or EIS shares exist yet, so sections 247 and 257HB are not needed. The holding company applies for advance assurance and issues the shares for the round itself, and the clearance application covers only capital gains tax and the transactions in securities rules.

After a round, wait until HMRC has authorised the compliance certificates for every SEIS and EIS share issue. A company that has issued shares and not yet filed its SEIS1 or EIS1 compliance statement cannot meet the conditions, and an exchange at that point would cost investors their relief. Once the certificates are issued, apply for clearance and complete the exchange only after HMRC has replied.

During a round, investors' lawyers sometimes ask for a holding company as a condition of completion. Insert it before the new shares are issued, so the holding company issues the round's shares and its advance assurance covers them. Our due diligence page covers what investors check before completion.

Help with a holding company

We prepare the clearance application, the stamp duty claim and the SEIS, EIS and EMI steps for a share-for-share exchange, and quote for the work in writing before we start. Our share structure service keeps the registers and cap table in step afterwards. Our pricing page lists our published fees, and you can get a quote for your accounts and tax.

Related reading

• Moving a UK startup under a US parent company
• Advance subscription agreements, convertible loan notes and SEIS and EIS relief
• Knowledge-intensive company status: the tests and the higher EIS limits
• Share options when someone leaves or the company is sold