Holding companies and demergers
Asset Holding Company vs Investment Company: What Is the Difference?
Both sit away from the trade, and both are used to protect value. But an asset holding company owns things the business uses, while an investment company owns surplus money and portfolios. The tax and practical differences matter.
On this page9 sections
- Neither term is a tax label
- What each one is for
- Asset holding company
- Investment company
- The key differences
- How the tax works
- Corporation tax rate
- Associated companies
- Dividends in
- Getting value out
- Selling the trade
- Risk and control
- Which one do you need?
- FAQs
- Is an asset holding company the same as a property company?
- Is an asset holding company a holding company?
- Does an asset holding company pay 25% corporation tax?
- Can I use a Family Investment Company instead?
- Do I need a lawyer to set one up?
- Talk to us
- Sources
Key takeaways
- 1"Asset holding company" and "investment company" are descriptions, not statutory categories.
- 2This company owns an asset, and a connected business uses it.
- 3A close company that is not wholly or mainly carrying on permitted activities is a close investment-holding company (CIHC).
Quick answer: An asset holding company owns an asset that the trading business uses, most often premises, and usually leases it back. An investment company holds surplus cash, shares or a portfolio that the business does not need. Both separate value from trading risk. They differ in how they are funded, how the income is taxed and what they do to your reliefs on a sale.
Neither term is a tax label
"Asset holding company" and "investment company" are descriptions, not statutory categories. HMRC looks at what the company actually does. Two companies with the same name can have different tax results, and two with different names can be treated alike. So the useful question is not what to call the company. It is what it holds, who uses it, and where the income comes from.
What each one is for
Asset holding company
This company owns an asset, and a connected business uses it. Typical examples:
- the freehold of the shop, office, workshop or warehouse;
- intellectual property licensed to the trading company;
- vehicles, plant or equipment leased to the trade;
- land held for future development.
The trading company pays rent or a licence fee. The assets sit outside the trading company, so a trading creditor cannot reach them as easily, and a buyer of the trade does not have to buy the building.
Investment company
This company holds assets for their own return. Typical examples:
- surplus cash from the trade, moved out to reduce the balance sheet of the trading company;
- a portfolio of shares, funds or bonds;
- property let to unconnected tenants;
- loans to other businesses.
The company may be linked to the trading business, often as a sister company or under a holding company. Our service page on the linked investment company sets out how this works.
The assets sit outside the trading company, so a trading creditor cannot reach them as easily, and a buyer of the trade does not have to buy the building.
The key differences
| Point | Asset holding company | Investment company |
|---|---|---|
| Main purpose | Own an asset the business uses | Earn a return on surplus funds |
| Income | Rent or licence fee from the connected business | Interest, dividends, rent from unconnected tenants, gains |
| Counterparty | Usually a connected party | Usually unconnected |
| Funding | Often the asset itself, perhaps with a loan | Cash moved from the trade, usually by dividend or loan |
| Close investment-holding risk | Higher, because letting to a connected party is not a permitted purpose | Higher, because holding cash and shares is not a permitted purpose |
| Effect on trading status of the trade | Helps, because premises are removed | Helps, because surplus cash is removed |
How the tax works
Corporation tax rate
A close company that is not wholly or mainly carrying on permitted activities is a close investment-holding company (CIHC). It pays the 25% main rate on all profits, with no access to the 19% small profits rate. Commercial letting to unconnected tenants is a permitted purpose. Letting to the owner's own trading company is a letting to a connected person, so a premises company that lets only to its sister trading company can be a CIHC. That means 25% on its rent. A separate article, close investment-holding companies and the 25% rate, explains the test.
Associated companies
A company that carries on a business, which includes active letting, is counted in the associated companies calculation. The profit limits of £50,000 and £250,000 are then divided among all associated companies. A company that has not carried on any trade or business in the period is ignored. That depends on the facts. See our article on associated companies.
Dividends in
Dividends received from UK companies are generally exempt from corporation tax. So an investment company funded by dividends from the trading company can receive them with no corporation tax. Interest, rent and gains are taxable.
Getting value out
Dividends paid to individuals are taxed at 10.75%, 35.75% or 39.35% in 2026/27 depending on the band, after the allowance. A company holding assets that grow in value does not have a tax charge until a sale or a distribution.
Selling the trade
A buyer of the trading company wants a clean trade. If the premises and surplus cash are removed beforehand, the trade may qualify more easily for reliefs that look at trading status, such as Business Asset Disposal Relief (18% from 6 April 2026, up to the £1m lifetime limit) and the substantial shareholding exemption. HMRC applies a rough 20% test for non-trading activity. Moving the assets out is a common reason to use either company.
The moves themselves have tax consequences. Taking property out of a trading company may need a demerger, a dividend in specie or a sale. Our article on SDLT traps when demerging property shows what to check.
Risk and control
| Point | Asset holding company | Investment company |
|---|---|---|
| Protection from trade creditors | Strong for the asset, subject to guarantees and security given by the owners | Strong for the cash, if the cash has been properly extracted |
| Lender involvement | Often, because the asset may be mortgaged | Less often |
| Family involvement | Can be a route to bring family into ownership of the asset | Can hold shares for family members, as in a Family Investment Company (FIC) |
| Rent or fee setting | Needs to be at a market level and documented | Not applicable |
An important point on rent. If the asset holding company charges a rent, the trading company needs the rent to be commercial and supportable. An excessive rent can be challenged. A rent that is too low shifts profit and may leave value in the trade. Document the basis.
Example: Hypothetical Engineering Ltd owns a unit worth £900,000 and holds £400,000 in surplus cash. The owners set up a holding company. The unit moves to an asset holding company, which leases it back for a commercial rent. The cash is paid up as a dividend to the holding company, which invests it. Now there are two non-trading companies. The premises company pays 25% on its rent if it is a CIHC, and the investment income is also taxed at 25%, apart from exempt dividends. The trading company is clean, and its rent is deductible. Whether the overall result is better depends on the numbers, the lender and the stamp duty position. All figures are hypothetical.
Which one do you need?
You may need one, the other, both, or neither.
- If the main concern is protecting a building the business needs, an asset holding company.
- If the concern is surplus cash and investments, an investment company, or a holding company that receives dividends.
- If both concerns apply, both can sit under a holding company, which is usually the tidiest design.
- If the business is small and the assets modest, the cost and complexity may not be justified.
Talk to us about Linked Investment Company
- Not a statutory term: a practical label for a company that holds investments alongside a trading business
- Where it sits (inside or outside the group) changes the tax result
- Investment-only companies pay the main rate of corporation tax on all profits
FAQs
Is an asset holding company the same as a property company?
Often it is, but not always. An asset holding company can hold intellectual property, equipment or land. A property company that lets to unconnected tenants is an investment business in its own right.
Is an asset holding company a holding company?
Not in the sense of owning shares. A holding company owns shares in subsidiaries. An asset holding company owns an asset such as a building. The words are similar, and the structures can sit together.
Does an asset holding company pay 25% corporation tax?
It may, if it is a close investment-holding company. This is common where the only tenant is a connected trading company. If it lets commercially to unconnected tenants, the position can differ.
Can I use a Family Investment Company instead?
A Family Investment Company is a form of investment company with articles designed for family ownership. It can hold investments for the family. It is not usually the right vehicle for a building the business uses, because of the tax and the connected-letting point.
Do I need a lawyer to set one up?
The company itself is simple to set up. The transfer of assets, the lease and the lender's consent need legal input, and the tax steps need advice. We coordinate all three.
Talk to us
If you are deciding where to hold the premises, the cash or the investments, we can compare the options with your numbers. Book a call for a free 20-minute conversation with our team.
Sources
- Close investment-holding companies: https://www.legislation.gov.uk/ukpga/2010/4/section/18N ; https://www.legislation.gov.uk/ukpga/2010/4/section/18A
- Corporation tax rates and limits: https://www.gov.uk/government/publications/rates-and-allowances-corporation-tax/rates-and-allowances-corporation-tax
- Associated companies and passive holding companies: https://www.legislation.gov.uk/ukpga/2010/4/section/18F ; https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm03945
- Exempt distributions (controlled companies): https://www.legislation.gov.uk/ukpga/2009/4/section/931E
- Dividend tax rates and allowance: https://www.gov.uk/tax-on-dividends
- Business Asset Disposal Relief: https://www.gov.uk/business-asset-disposal-relief
- Substantial Shareholdings Exemption: https://www.legislation.gov.uk/ukpga/1992/12/schedule/7AC/paragraph/19
Business Owners
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