Selling a Subsidiary or the Whole Group: SSE Versus BADR, With a Worked Example

If your business sits under a holding company, there are two basic ways to sell it.

1. The holding company sells the trading company. The gain can be exempt under the substantial shareholding exemption (SSE) and the cash stays in the holding company.
2. You sell your shares in the holding company. You pay capital gains tax, with Business Asset Disposal Relief (BADR) at 18% on up to £1m of lifetime gains, and the cash is yours.

Neither is always better. The answer depends on what the money is for. This article works through one example at 2026/27 rates.

The two reliefs side by side

• Who sells: SSE applies to a company, the holding company. BADR applies to an individual, you.
• What is sold: in both cases, shares in a trading company or the holding company of a trading group.
• Holding condition: SSE needs at least 10% for a continuous 12 months starting within the six years before the sale. BADR needs at least 5% in a personal company for the two years before the sale.
• Other conditions: for SSE the company sold must be trading throughout the relevant period. For BADR you must be an officer or employee of a group company throughout the two years.
• Tax on the gain: SSE gives nil corporation tax. BADR gives 18% on the first £1m of lifetime gains, with 24% above that for higher-rate taxpayers.
• Where the cash ends up: SSE leaves it in the holding company. BADR puts it in your hands.

The old condition that the investing company itself had to be trading was removed from 1 April 2017. A holding company can be a pure holding company, or hold investments, and still use SSE.

The worked example

These are illustrations, not client examples. Assume:

• the holding company owns 100% of a trading company and has no other assets
• a buyer will pay £3,000,000, either for the trading company's shares (from the holding company) or for the holding company's shares (from you)
• you hold all the holding company's shares, with a base cost of £1,000 carried over from your original shares by the share exchange
• you are an additional-rate taxpayer on other income, have not used BADR before, and every condition for both reliefs is met
• we ignore transaction costs and degrouping charges

Route A: you sell the holding company

• Proceeds £3,000,000, less base cost £1,000, gives a gain of £2,999,000.
• The first £1,000,000 is taxed at 18%, which is £180,000.
• The remaining £1,999,000, less the £3,000 annual exempt amount, is £1,996,000 taxed at 24%, which is £479,040.
• Capital gains tax totals £659,040, leaving £2,340,960 in your hands. That is an effective rate of about 22%.

Route B: the holding company sells the trading company under SSE

• The holding company receives £3,000,000 and pays no corporation tax on the gain.
• It has £659,040 more cash than you would have personally under Route A.

What happens next decides whether that advantage is real.

What happens to the cash in the holding company

• B1: keep and reinvest it. No tax now, and £3,000,000 is working in the company. Tax arises only when money is eventually taken out.
• B2: pay it all out as a dividend in one year. After the £500 allowance, £2,999,500 is taxed at 39.35%, which is £1,180,303, leaving £1,819,697.
• B3: liquidate the holding company with BADR available. The result is similar to Route A, at £659,040 of tax plus liquidation costs, leaving about £2,340,960.
• B4: liquidate without BADR. The gain less the annual exempt amount is taxed at 24%, giving £719,040 of tax and about £2,280,960.

If you want the money personally, Route A is simplest and usually best.

What the numbers say

If you want the money personally, Route A is simplest and usually best. Paying the proceeds out as a dividend (B2) costs about £521,000 more in this example.

If the money will be reinvested in another business, property or investments through the company, Route B wins clearly. The holding company starts with £3m rather than £2.34m, and tax is paid only when money is eventually drawn out, perhaps gradually and at lower rates, or by a later generation.

A liquidation after an SSE sale (B3 or B4) can get close to Route A, but it adds cost, delay and risk. BADR can be available on a distribution within three years of the holding company ceasing to head a trading group, if the conditions were met for the two years before. A targeted anti-avoidance rule (section 396B of the Income Tax (Trading and Other Income) Act 2005) can also treat a liquidation distribution as income if you carry on a similar activity within two years and a main purpose is avoiding income tax.

A second example: selling one business, keeping another

Often a holding company owns two trading companies. Suppose Company B is sold for £2,000,000 and the proceeds are to expand Company A.

• If the holding company owns B: there is no tax on the sale, £2,000,000 is available to reinvest, and the holding company lends it to A or subscribes for shares.
• If you own B directly: tax is £180,000 plus £239,040 (24% of £996,000), a total of £419,040, leaving £1,580,960 to reinvest, and you must lend or subscribe from taxed cash.

Here the group structure is worth £419,040 of extra capital in the business. It is one of the main reasons owners place a holding company above two companies.

Points that can change the answer

• SSE needs the holding company's own 12 months. The condition is measured from when the holding company acquired the shares. A holding company inserted shortly before a sale may not have held the trading company for long enough, and inserting one with a sale in view raises questions under the main purpose test and the transactions in securities rules.
• The company being sold must be trading. Surplus cash inside it can threaten that status.
• The holding company must head a trading group for BADR. Under Route A the test covers the holding company and its subsidiaries together, so investments, let property or cash held in the holding company count.
• Inheritance tax. Shares in a trading group can qualify for Business Relief, but cash after a sale generally does not.

Which route?

If the proceeds are for your retirement, Route A is usually the starting point. If they are for the next venture, long-term family investments or another acquisition, Route B usually comes out ahead. Many exits combine both over time.

Our specialist team prepares the advice, which is reviewed by a Chartered Tax Adviser, and we can model your own figures before any sale terms are agreed. To talk it through, book a call with our team. You can also read about our exit planning and holding company services.

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

Our specialist practice Holding Company covers group structures and holding company insertions in more depth.