Monthly Newsletter June 2026

Welcome to the June 2026 edition of the ASWATAX newsletter.

This month we take a closer look at a cost of holding company structures that rarely gets mentioned alongside the benefits: the associated companies rules, and the effect they can have on your corporation tax bill once a group structure is in place.

We also explore a client case that illustrates why the most significant problem in an estate is often the one nobody is looking at, and a short piece on the conversation most families in business never quite get around to having.

As always, if any of the topics covered raise questions for your own position, please do not hesitate to contact us.

1. Associated Companies: The Holding Company Cost That Rarely Makes the Pitch

   
   

Holding company structures are everywhere in business advice at the moment. Insert a parent company above your trading business, the pitch goes, and you unlock asset protection, tax-efficient accumulation of profits, and a clean platform for growth. Much of that is genuinely true, and we have written elsewhere about why a holding company is often the right structure for a growing business.

Holding companies do come with real disadvantages worth weighing before committing to one: the cost and complexity of running an additional company, the fact that profit accumulated inside a group is not the same as cash in your pocket personally, and the risk that the whole protective structure unravels if it is not properly documented and maintained. Those are conversations worth having on their own terms. This article focuses on a fourth disadvantage that gets far less attention than any of them, partly because it does not fit neatly into a pitch about protection or growth, and partly because it is genuinely easy to miss until it shows up on the first set of post-restructuring accounts.

 Inserting a holding company can increase your corporation tax bill immediately, regardless of how well the rest of the structure is designed.

What Are Associated Companies?

Two companies are associated for corporation tax purposes where one has control of the other, or where both are under the control of the same person or group of persons. Control broadly means holding more than 50% of the share capital, the voting rights, or the entitlement to profits and assets on a winding up. A parent company and its subsidiary are associated. Two subsidiaries owned by the same parent are associated with each other and with the parent. The test looks at the structure of the whole group, not just direct ownership between any two companies.

This matters because UK corporation tax is not a single flat rate. Companies with profits up to £50,000 pay tax at the small profits rate of 19%. Companies with profits above £250,000 pay the main rate of 25%. Profits falling between those two thresholds attract marginal relief, a tapering mechanism that produces an effective rate somewhere between 19% and 25%, rising as profits increase towards £250,000.

Both the £50,000 and the £250,000 thresholds are shared across a group of associated companies rather than granted to each company individually. They are divided by the total number of associated companies in the group, including the company itself.

Not every company under common ownership is necessarily counted. Dormant companies, those with no income, expenditure, or accounting transactions in the period, are generally excluded from the count. Companies controlled by the same individual through entirely separate and unconnected shareholdings can also be excluded in some circumstances, where there is no substantial commercial interdependence between them. But the starting position for any group with a holding company at its centre is straightforward: every subsidiary that the holding company controls counts, and the holding company itself counts too, even though it may have little or no trading profit of its own.

How the Division Works in Practice

A single standalone company with no associated companies has the full thresholds available to it: £50,000 and £250,000. The moment a holding company is inserted above it, there are two associated companies, the holding company and the trading company. Both thresholds are divided by two. The small profits threshold falls to £25,000. The upper threshold falls to £125,000.

	Standalone company	Two associated companies
Example 1: Company with £150,000 Annual Profit
Upper corporation tax threshold	£250,000	£125,000
Marginal relief available?	Yes	No, profit exceeds threshold
Effective corporation tax rate	24%	25%
Corporation tax payable	£36,000	£37,500
Additional tax from associated companies rule		£1,500 per year

Before the holding company existed, a trading company making £150,000 of annual profit sat comfortably within the marginal relief band, between the old thresholds of £50,000 and £250,000, producing an effective rate of 24% and a tax bill of £36,000. Insert a holding company above that same trading business, and the upper threshold halves to £125,000. A profit of £150,000 now exceeds the new upper threshold entirely, no marginal relief applies, and the full 25% main rate applies to the whole amount. The holding company structure has added £1,500 a year to the corporation tax bill of a business whose underlying profitability has not changed at all.

It Gets Worse With Scale

The effect compounds as more entities are added to the group. A holding company with three trading subsidiaries beneath it is a group of four associated companies. The thresholds, divided by four, fall to £12,500 and £62,500.

	Standalone company	Four associated companies
Example 2: Subsidiary with £100,000 Annual Profit
Upper corporation tax threshold	£250,000	£62,500
Marginal relief available?	Yes	No, profit exceeds threshold
Effective corporation tax rate	22.75%	25%
Corporation tax payable	£22,750	£25,000
Additional tax from associated companies rule		£2,250 per year

A subsidiary in that group generating £100,000 of annual profit would, as a standalone company, have sat inside the marginal relief band and paid an effective rate of 22.75%. Inside the four-company group, with an upper threshold of only £62,500, that same £100,000 of profit comfortably exceeds the threshold and is taxed in full at 25%. The group structure has cost that one subsidiary an additional £2,250 a year, before counting any of the other subsidiaries in the group.

Why This Catches Business Owners Out

The associated companies rule is rarely the headline feature of holding company advice, and it is easy to see why. It does not fit neatly into a conversation about asset protection, succession planning, or tax-efficient accumulation of retained profits, all of which remain genuinely valuable features of a well-designed group structure. The corporation tax cost sits quietly in the background and typically only becomes visible once a business owner compares their actual tax bill before and after the restructuring.

It is also a cost that scales the wrong way for many of the businesses considering this kind of structure. A holding company tends to make the most commercial sense once a business has grown to a scale where the protection, the flexibility, and the planning opportunities clearly outweigh the additional cost and complexity. But the associated companies effect bites earliest and hardest precisely in the profit range many growing owner-managed businesses occupy: comfortably profitable, but not yet operating at a scale where £1,500 or £2,250 a year is immaterial.

None of this means a holding company structure is the wrong decision. For many businesses, the asset protection and succession planning benefits alone justify a materially larger cost than this. But the corporation tax impact needs to be modelled explicitly and weighed against the other benefits, rather than discovered for the first time on the first set of post-restructuring accounts.

What This Means in Practice

Before inserting a holding company, or before adding further subsidiaries to an existing group, it is worth running the actual numbers at current and projected profit levels for every entity involved. The calculation is mechanical and can be done with precision: count the associated companies, divide the thresholds accordingly, and compare the resulting tax position against the standalone position for each company in the group.

For groups where profits sit well below £50,000 per associated company, or comfortably above £250,000 per associated company even after division, the effect is immaterial. It is the businesses sitting in the middle, broadly the £100,000 to £200,000 profit range per entity, where the associated companies rule has the most to say, and where the conversation is most worth having before, rather than after, the structure is put in place.

It is also worth reviewing the position periodically rather than only at the point a structure is first established. A group that comfortably absorbed the associated companies effect when each entity was generating modest profits can find the position changes materially as the business grows. A subsidiary that sat well within marginal relief on a divided threshold three years ago may, on the same divided threshold today, be paying the full main rate on profit that would otherwise have qualified for relief. Reviewing the group's corporation tax position as part of the annual accounts process, rather than waiting for it to surface as a surprise, keeps the structure working in the way it was originally intended to.

How ASWATAX Can Help

We model the corporation tax impact of any proposed group restructuring before it is implemented, alongside the wider IHT, succession, and asset protection analysis that typically drives the decision to set up a holding company in the first place. If you are considering inserting a holding company above an existing business or adding further entities to a group you already operate, we can show you precisely what the associated companies rule means for your specific profit levels before you commit to the structure.

Get in touch to discuss your group structure and corporation tax position.

2. Case Study: When the Biggest IHT Problem Is Not the One You Were Looking At

   
   

A family approached us recently for an inheritance tax review. Between them they held two profitable trading businesses in entirely different industries, a property development company, a substantial personal investment portfolio built up over decades, a main residence, and an investment property in Dubai. Combined, the estate totalled approximately £12 million, with an estimated IHT liability on second death of just over £3.6 million.

They came to us assuming the businesses were where the problem sat. In fact, the businesses were largely manageable. The trading companies and the development company were mostly covered by Business Property Relief, subject to the £2.5 million per individual cap introduced in April 2026. The real and fastest-growing problem was the investment portfolio, held personally and entirely unstructured, compounding year on year and adding an estimated £110,000 to the taxable estate every year with no mechanism to slow it down.

We set out four structural options for the family to consider. Each had different implications for tax efficiency, control, and complexity. They ranged from a standalone Family Investment Company to hold the portfolio, to a more comprehensive structure combining a Trading HoldCo above the businesses with the FIC holding a minority stake and receiving dividends directly without any intercompany loan arrangement. A third option addressed the family's ambition to build a residential property portfolio, and included a specific analysis of the risk that doing so through the development company could put its existing BPR position at risk under the wholly or mainly trading test.

Alongside the four structural options, we explored two further planning tools that sit independently of whichever structure the family chooses: the normal expenditure out of income exemption, which allows regular gifts from surplus income to fall outside the estate immediately and with no seven-year survivorship period, and the use of a discretionary trust as the vehicle for future gifting, giving trustees ongoing flexibility over distributions across a wider class of beneficiaries including any future grandchildren.

The family is currently working through the options. In illustrative terms, both the FIC-only and the combined structure would produce significant tax savings and reduction in the taxable estate, with the more significant long-term benefit being the freeze on future portfolio growth and future property investment activities accumulating outside the estate from that point.

The full case study is available on the ASWATAX website. If your estate includes a mix of trading interests, property, and a personal investment portfolio with no clear structure between them, get in touch to arrange a review.

3. Inheritance: The Conversation Most Business-Owning Families Never Quite Have

   
   

There is a conversation that most business-owning families mean to have, and almost none of them do, at least not properly. Not because they do not care about it. But because the right moment never quite arrives, the topic feels morbid, the children seem too young or too busy, and there is always something more pressing on the agenda.

The conversation is this: what actually happens to the business when you are no longer here?

Not in a legal sense. The Will handles that, or at least it is supposed to. The conversation we mean is the one where the founder explains to the people who matter what they have built, why they built it, what they would want for it, and what they would want for the people left behind. The conversation where the next generation says what they actually want, which is often very different from what the founder has assumed.

We see the consequences of this conversation not being had regularly in our work. The estate that passes cleanly to two children who have profoundly different views about whether to keep the business or sell it. The family where one child has quietly built a life around the assumption they will inherit the company, and another has quietly built a life around the assumption they will not, and neither assumption has ever been spoken aloud. The business that the founder always intended to pass on intact, and the family that would quietly have preferred the liquidity.

None of these are tax problems. A Will, a shareholder agreement, and a carefully designed IHT structure can all be technically sound and still leave a family in difficulty because nobody sat down and talked about what they actually wanted before the moment arrived when it was too late to change anything.

The summer months, with school holidays approaching and the pace of business slowing slightly, are often when people think about these things. If you have been meaning to have this conversation with your family, or with your co-directors, or with your advisers, this is a prompt to use the next few weeks to do it. It does not need to be formal. It does not need to be complete. It just needs to start.

The best estate plans are built around what a family actually wants, not around what the founder assumed they wanted or the tax implications. The planning follows the conversation, not the other way around.

If you would find it useful to have a facilitated conversation about succession and what comes next, either within your family or between your advisers, we are happy to be part of that. It is one of the most valuable things a good adviser relationship can provide, and it costs nothing to start.

If any of the topics in this edition are relevant to your position, please contact our team.