Corporation Tax for Investment Companies: Complete Guide

Running investments through a limited company is increasingly common — whether you're holding shares, property, or other assets. But the tax treatment is different from a trading company, and the CT600 has some specific quirks.

This guide explains how corporation tax works for investment companies — companies whose main activity is holding investments rather than carrying on a trade.

What Is an Investment Company?

An investment company is a company whose business consists wholly or mainly in making investments. HMRC defines it as a company that isn't a trading company.

Common examples:

Property holding companies — owning buy-to-let properties
Share portfolio companies — holding listed or unlisted shares
Family investment companies (FICs) — holding mixed assets for wealth planning
Holding companies — owning shares in subsidiary trading companies

If your company does some trading and some investing, it's classified based on its main activity. A company that trades 80% and invests 20% is still a trading company.

Corporation Tax Rates for Investment Companies

Investment companies pay corporation tax at the same rates as trading companies:

Profits	Rate
Up to £50,000	19% (small profits rate)
£50,001 - £250,000	Marginal relief applies (effective 26.5%)
Over £250,000	25% (main rate)

These thresholds are divided by the number of associated companies, including the investment company itself.

Important: These thresholds apply to all profits — investment income, capital gains, and any incidental trading income combined.

How Different Income Types Are Taxed

Rental Income

If your investment company owns property, rental profits are taxed as property income, not trading income. The computation is similar to individual property income:

Gross rental income
Less: allowable expenses (mortgage interest, repairs, management fees, insurance)
Equals: taxable property income

Key advantage over individual ownership: Companies can deduct mortgage interest in full. Since April 2020, individual landlords can only claim a 20% tax credit on mortgage interest — a major reason many landlords have incorporated their property portfolios.

Dividend Income from UK Companies

Dividends received from other UK companies are usually exempt from corporation tax. This is a significant benefit for holding companies.

The exemption covers most scenarios:

Dividends from UK subsidiaries → exempt
Dividends from UK listed shares → exempt (if they fall within an exempt class)
Most foreign dividends → exempt (with some anti-avoidance conditions)

There are some exceptions (e.g., dividends designed to avoid tax, certain distributions from REITs), but for standard portfolio or subsidiary dividends, no corporation tax is due.

Interest Income

Interest received by an investment company — from bank accounts, bonds, or loans — is taxable as non-trading loan relationship income.

This is included in your CT600 and taxed at the standard corporation tax rate. There's no separate rate for interest income.

Capital Gains

When an investment company sells an asset (shares, property, etc.), any gain is taxable. But the calculation differs from individuals:

No annual exempt amount — companies don't get the CGT annual exemption
No separate CGT rate — gains are added to profits and taxed at corporation tax rates (19%-25%)
Indexation allowance was frozen in December 2017 and abolished for disposals after January 2018 for the inflationary element

For substantial shareholdings (≥10% held for 12+ months in a trading company), the Substantial Shareholding Exemption (SSE) may apply, making the gain completely exempt. This is mainly relevant for holding companies selling subsidiaries.

Investment Company vs Trading Company: Key Differences

Feature	Trading Company	Investment Company
Corporation tax rates	19%-25%	Same: 19%-25%
Loss relief	Carry back 1 year, forward indefinitely	More restricted (see below)
Group relief	Available	Available
R&D relief	Available	Not available
Annual Investment Allowance	Available	Limited (only on management assets)
Entrepreneurs' Relief / BADR	Available to shareholders	Not available
EMI share schemes	Available	Not available

The biggest practical difference is often at the shareholder level — when extracting value. Business Asset Disposal Relief (10% CGT rate on up to £1m of gains) is not available when selling shares in an investment company.

Allowable Expenses for Investment Companies

Investment companies can deduct expenses that are incurred wholly and exclusively for the management of the company. This is called the management expenses deduction (Section 1219 CTA 2009).

What qualifies as management expenses

Accounting and audit fees
Legal fees for investment management
Investment management fees (fund manager charges)
Directors' fees related to managing investments
Bank charges and administration costs
Office costs (if needed for managing investments)
Property management fees (for property investment companies)

What doesn't qualify

Capital expenditure (e.g., buying the investments themselves)
Expenses of a capital nature (e.g., legal fees for acquiring a property — these are added to the base cost)
Expenses not related to management (personal expenses, non-business costs)

How management expenses work

Unlike trading expenses (which reduce trading profits), management expenses are set against total profits — meaning they can reduce investment income, capital gains, and any other income.

If management expenses exceed total profits, the excess is carried forward and set against future total profits. There's no time limit on carrying forward management expenses.

Filing the CT600 for Investment Companies

The CT600 for an investment company includes some specific sections:

Box 1: Type of company

You'll indicate the company is an investment company (not a trading company) in the company type section.

Income sections

Trading income: Usually nil or minimal for a pure investment company
Property income: Rental profits (Box 21 area)
Non-trading loan relationships: Interest received (CT600 supplementary pages)
Capital gains: Reported in the chargeable gains section

CT600 Supplementary Pages

Investment companies often need additional supplementary pages:

CT600A — loans and derivatives (for interest income/expenses)
CT600B — if claiming the Substantial Shareholding Exemption
CT600C — group relief claims
CT600E — charities (if relevant)

Read our CT600 supplementary pages guide for details on each.

iXBRL accounts

Your iXBRL accounts must accurately reflect the investment company nature. The accounts should be prepared under the correct FRS standard and the balance sheet will typically show investment properties, listed investments, or shares in subsidiaries as the main assets.

Loss Relief for Investment Companies

Loss relief is more restricted for investment companies than trading companies:

Property losses

Can only be set against future property income (not other income)
Carried forward indefinitely
Cannot be carried back

Capital losses

Can only be set against capital gains
Carried forward indefinitely against future gains
Cannot be set against income

Non-trading loan relationship deficits (excess interest costs)

Can be set against total profits of the same period
Can be carried back 1 year
Can be carried forward against non-trading profits
Can be surrendered as group relief

Management expenses

Set against total profits
Excess carried forward indefinitely against future total profits

The restricted loss relief is one reason investment companies need careful planning. You can't freely offset different types of losses against each other.

Family Investment Companies (FICs)

A family investment company is an investment company used for wealth planning and inheritance tax mitigation. There's no special legal status — it's just a regular limited company with a specific purpose.

How FICs work

Parents subscribe for shares and loan money to the company
The company invests the funds (property, shares, etc.)
Different share classes give different rights (voting, dividends, capital)
Over time, value shifts to children's shares through dividend waivers or growth shares
Parents retain control through voting shares

Corporation tax treatment

The FIC pays corporation tax in the normal way:

Investment returns are taxed at 19%-25%
Dividend income from UK companies is usually exempt
Management expenses are deductible

FIC vs personal ownership

Factor	FIC	Personal
Tax on investment returns	19%-25% CT	Up to 45% income tax / 20% CGT
Dividend received	Usually exempt	Taxed after £1,000 allowance
Extracting profits	Taxed again as dividend/salary	Already in personal hands
Inheritance tax planning	Effective (value shifting)	Limited
Flexibility	High (share classes)	Low

FICs make most sense for wealthy families with long-term investment horizons who want IHT planning benefits.

Winding Up an Investment Company

When you close an investment company, the tax treatment depends on how distributions are made:

Normal distributions during winding up: treated as dividends (taxed at dividend rates for the shareholder)
Capital distributions in a formal liquidation: treated as capital gains (potentially eligible for lower CGT rates)
Business Asset Disposal Relief: not available for investment company shareholders — the 10% CGT rate doesn't apply

This is a major disadvantage compared to closing a trading company, where BADR can reduce the shareholder's tax to 10% on up to £1m of gains.

Frequently Asked Questions

Does an investment company pay corporation tax?

Yes. Investment companies pay corporation tax at the same rates as trading companies — 19% (small profits), marginal relief up to 25% (main rate). All investment income and capital gains are taxable.

Are dividends received by a company taxable?

Most dividends received from UK companies are exempt from corporation tax. This is one of the key advantages of holding investments through a company. Foreign dividends are also usually exempt with some conditions.

Can an investment company claim the Annual Investment Allowance?

Only on assets used for the management of the company (e.g., a computer for managing the portfolio). AIA cannot be claimed on the investments themselves. Property companies can claim capital allowances on certain fixtures within the properties.

What is the best structure for holding investments?

It depends on your goals. Companies are generally better for property investment (full mortgage interest relief), IHT planning (family investment companies), and portfolio building (lower tax rate on retained profits). Individuals may be better for short-term holdings (annual CGT exemption, BADR on trading company shares).

Do I need to file a CT600 for an investment company?

Yes. All limited companies must file a CT600 with HMRC, whether they're trading or investing. The filing deadline is 12 months after the end of your accounting period.

Can investment company losses be carried back?

It depends on the type of loss. Non-trading loan relationship deficits can be carried back 1 year. Property losses and capital losses can only be carried forward. This is more restrictive than trading loss carry-back rules.

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