The situation
A 12-person PR agency based in Shoreditch, London, specialising in B2B tech and fintech clients. The agency had grown steadily over five years, reaching £2.8m in annual recurring revenue with a 22% EBITDA margin. The founder, a former journalist, owned 100% of the ordinary shares. The business had always been run as a straightforward limited company, with no holding structure, no group entities, and a single trading subsidiary.
In early 2025, the founder began exploratory conversations with a growth equity firm that specialised in professional services. The investor was interested in a £1.5m Series A round for a 20% stake, valuing the agency at £7.5m post-money. The term sheet was promising, but the investor’s legal team flagged a structural issue: the agency’s single-company setup would make it difficult to ring-fence IP, separate the founder’s personal assets, and offer future equity incentives to senior staff without creating a messy cap table.
The decision
The founder needed to decide whether to restructure the agency into a holding company structure before accepting the investment. The investor made it clear they would prefer a clean parent-subsidiary arrangement, with the holding company holding the shares of the trading company and any future subsidiaries. The founder’s core concerns were:
- Preserving the ability to sell shares in the future under Business Asset Disposal Relief (BADR) at 14% CGT, rather than the higher 24% rate for non-qualifying disposals.
- Ensuring the holding company could issue share options to key employees without diluting the founder’s personal stake in the trading company.
- Avoiding a tax charge on the transfer of the trading company’s shares to the new holding company.
- Getting the structure in place within 8 weeks to meet the investor’s due diligence timeline.
What we modelled
We modelled three options for the founder, using 2025/26 UK tax rates and reliefs:
Option 1: Do nothing – remain as a single limited company. The investor would take 20% of the trading company directly. The founder’s remaining 80% would be worth £6m on paper. Future share options for staff would be issued from the same company, diluting the founder’s stake. On a future exit, the founder would pay 24% CGT on gains above the annual exempt amount (£3,000), unless they qualified for BADR – which would require meeting the 5% holding and 2-year ownership conditions at the time of sale. The investor’s legal team had already indicated they would require a separate IP holding entity, which would add complexity later.
Option 2: Share-for-share exchange into a holding company (Section 135 TCGA 1992). The founder would exchange their shares in the trading company for shares in a new holding company. This would be a tax-neutral transaction, meaning no immediate CGT charge. The holding company would then own 100% of the trading company. The investor would subscribe for shares in the holding company, not the trading company. This kept the cap table clean and allowed the holding company to issue EMI share options to staff. The founder’s shares in the holding company would qualify for BADR on a future sale, provided they met the 2-year holding period and 5% economic interest test. The downside: legal and accounting fees of £12,000–£15,000, plus 6–8 weeks of work.
Option 3: Holding company with a separate IP company. A variant of Option 2, where the founder also transferred the agency’s brand trademarks and proprietary media monitoring software into a separate IP holding company, owned by the holding company. This would allow the trading company to pay a royalty to the IP company, reducing corporation tax in the trading company (from 25% to 19% on the royalty income, after the IP company’s own costs). The investor was comfortable with this, as it protected the IP from any future trading liabilities. The extra cost: £5,000–£8,000 for IP valuation and legal work, plus 2 more weeks.
The outcome
The founder chose Option 3. The share-for-share exchange was completed in 7 weeks, just ahead of the investor’s deadline. The holding company (PR Group Ltd) was incorporated, and the founder received 100% of its shares in exchange for their shares in the trading company (PR Agency Ltd). The IP company (PR IP Ltd) was set up as a wholly-owned subsidiary of the holding company, and the trademarks and software were transferred to it at market value, with a deferred tax election to avoid an immediate CGT charge.
The investor subscribed for £1.5m of new shares in the holding company, giving them 20% of the group. The founder retained 80% of the holding company, which in turn owned 100% of the trading company and 100% of the IP company. The cap table was clean: three entities, one holding company, one investor, one founder.
The financial result: the founder’s effective tax rate on a future exit would be 14% under BADR, rather than 24% – a saving of £240,000 on every £1m of gain above the annual exempt amount. The IP company’s royalty income was taxed at 19% corporation tax, compared to the 25% the trading company would have paid on the same profits, saving approximately £12,000 per year in tax. The total cost of the restructuring was £19,000, which was fully deductible against the holding company’s future corporation tax.
The agency continued to trade profitably, and the investor’s due diligence was completed without any structural issues. The founder reported that the clean cap table made it easier to recruit a finance director and a head of growth, both of whom received EMI share options in the holding company.
What others can learn
- Restructure before you raise, not after. Investors prefer a clean holding company structure from day one. Trying to reorganise after a term sheet is signed can delay the round and create tax complications. Start the process at least 8 weeks before you expect to accept investment.
- Share-for-share exchanges are tax-neutral if done correctly. Section 135 of TCGA 1992 allows you to swap your trading company shares for holding company shares without triggering a CGT charge. Get professional advice to ensure the exchange meets HMRC’s clearance requirements – we submitted a clearance application and received confirmation in 4 weeks.
- BADR is worth protecting. The difference between 14% and 24% CGT is significant. A holding company structure preserves your ability to claim BADR on a future sale, provided you hold at least 5% of the shares and meet the 2-year qualifying period. If you sell within 2 years of the restructuring, you may lose BADR on that portion of the gain.
- Separate IP from trading risk. If your agency owns valuable trademarks, software, or methodologies, consider putting them in a separate IP company. This protects the IP from any future trading liabilities and can reduce your group’s overall corporation tax bill through royalty payments.
- Budget for professional fees. A holding company restructuring typically costs £12,000–£20,000 in legal and accounting fees, plus 6–8 weeks of time. This is a small price to pay for a clean cap table and significant future tax savings. The fees are tax-deductible against the holding company’s future profits.