Advanced Taxation (UK) · Corporation tax: the scope of corporation tax, including close companies and investment companies

Investment Companies and Property Income in Corporation Tax

Updated 11 October 2026 · Fact-checked

An investment company has no trade. Its income is mainly property business profits, interest and other investment income. You compute each source separately, deduct management expenses from total profits, and relieve losses under set rules. Property losses go against total profits first, then carry forward. Excess management expenses carry forward.

Understand Investment Companies and Property Income

A trading company earns profits from a trade. An investment company holds assets to earn income, usually rent, interest or dividends. Companies do not pay income tax. All their profits are charged to corporation tax, but the income is split into sources, and each source has its own rules.

The main sources for an investment company are UK property business profits, non-trading loan relationship credits (interest received on loans, deposits and similar) and chargeable gains. Dividends from UK companies are normally exempt, so they do not enter taxable total profits. Property income is computed on the accruals basis, with deductions similar to those for a trader but no capital allowances on ordinary dwellings.

An investment company has no trade, so costs of running the company are not trading expenses. Instead it gets relief for management expenses. These are the costs of managing the business, such as directors' pay, accountancy and general administration. They must be revenue in nature and incurred for the purposes of the company's investment business. Capital items and expenses that are deducted elsewhere, such as property business costs, are not management expenses.

Losses follow source rules. A UK property business loss is set against the company's total profits of the same period, and any unused part is carried forward against total profits of later periods. Excess management expenses are carried forward and treated as management expenses of the next period. A non-trading loan relationship deficit can be set against total profits of the same period, carried back, or carried forward. You need to know the options and then choose the most useful one.

In the exam, the scenario usually gives rents, interest, expenses and a loss, and asks for the corporation tax computation and advice. Use the rates from the tax tables: 19% small profits rate, 25% main rate, with marginal relief between £50,000 and £250,000 of augmented profits. Limits are divided by the number of associated companies and time-apportioned for short periods.

Key rules to remember

Taxable total profits: Property income + non-trading loan relationship credits + chargeable gains − management expenses − loss reliefs; Dividends from UK companies are normally exempt and excluded from taxable total profits, but are included in augmented profits for the limits.
Management expenses: Deduct from total profits of the period; excess carried forward as management expenses of the next period; Only revenue expenses of an investment business. Do not double count costs already deducted in the property business computation.
UK property business loss relief: Set against total profits of the same period; unused loss carried forward against total profits of later periods; Check the exact options for the company's circumstances when answering. Carried-forward relief may be restricted by the company's loss rules for large profits.
Rates for the financial year 2025: Small profits rate 19%; main rate 25%; lower limit £50,000; upper limit £250,000; These are given in the tax tables.
Marginal relief: (Upper limit − Augmented profits) × Standard fraction × Taxable total profits ÷ Augmented profits, with standard fraction 3/200; Applies where augmented profits lie between the lower and upper limits. Limits are reduced for associated companies and short periods.

How to solve Investment Companies and Property Income questions

Work source by source, then combine. This keeps the layout clear and earns method marks even if one figure is wrong.

1Confirm the company is an investment company: no trade, income from property, loans or shares. Note the accounting period and any associated companies.
2Compute the UK property business profit or loss. Include rents on an accruals basis. Deduct allowable revenue costs. Treat capital costs as disallowed.
3Compute non-trading loan relationship credits or deficits. Use interest receivable less interest payable on non-trading borrowing.
4Compute chargeable gains, if any, and show dividends separately as exempt.
5Deduct management expenses from total profits. Bring forward and carry forward any excess.
6Apply loss reliefs in the order the question allows, and state which option is best and why.
7Arrive at taxable total profits. Compute augmented profits by adding exempt dividends, then apply the rates and marginal relief if needed.
8Write a short conclusion or advice line using the scenario facts.

Quickest way: Layout-first investment company computation

When to use it: Use this when time is short and the question gives many income and expense items.

Draw a column layout for property income, non-trading loan relationships, gains and total.
Put each item in its source line before calculating anything.
Strike out dividends and capital items from the profit lines and note them.
Deduct management expenses once, from the total.
Check the limit position first: if profits are well below £50,000, apply 19%. If far above £250,000, apply 25%. Only do marginal relief in between.

Common mistakes in Investment Companies and Property Income

Deducting management expenses in the property business computation.
Students treat the company like a trader or landlord.
Fix: Show management expenses as a deduction from total profits only. Property business deductions are separate costs of letting.
Including UK dividends in taxable total profits.
Dividends look like income, so they are added by habit.
Fix: Exclude them from taxable total profits. Add them back only when computing augmented profits for the limits.
Claiming capital allowances on a capital item or ignoring capital treatment.
Students mix up the capital allowance rules with revenue deductions.
Fix: Disallow capital expenditure from the revenue computation, and only claim allowances where the rules allow.
Forgetting the carry forward of excess management expenses.
Students stop once taxable total profits fall to nil.
Fix: State the unused amount and show it carried forward to the next period.
Using the full £50,000 and £250,000 limits when there are associated companies or a short period.
The limits are memorised as fixed numbers.
Fix: Divide by one plus the number of associated companies, and time-apportion for short periods, before choosing the rate.

Worked examples

Example 1

Quill Investments Ltd has no associated companies. For the year to 31 March 2026 it has UK property business profit of £90,000, bank interest receivable on non-trading deposits of £10,000 and management expenses of £25,000. Compute the corporation tax liability. Assume the financial year 2025 rates apply.

Show the solution

Property business profit: £90,000.
Non-trading loan relationship credit: £10,000.
Total profits before management expenses: £100,000.
Deduct management expenses: £25,000. Taxable total profits: £75,000.
There are no dividends, so augmented profits equal £75,000. This is between £50,000 and £250,000, so marginal relief applies.
Tax at main rate: £75,000 × 25% = £18,750.
Marginal relief: (£250,000 − £75,000) × 3/200 × £75,000 ÷ £75,000 = £175,000 × 3/200 = £2,625.
Corporation tax: £18,750 − £2,625 = £16,125.

Answer: Corporation tax liability is £16,125.

Example 2

Harbour Rentals Ltd, an investment company with no associated companies, makes a UK property business loss of £30,000 and has non-trading interest income of £70,000 for the year to 31 March 2026. Management expenses are £15,000. Explain how the loss is relieved and compute taxable total profits.

Show the solution

The property business loss is first set against total profits of the same period.
Total profits before the loss and management expenses: £70,000 (the property business source gives nil profit).
Deduct the property loss: £70,000 − £30,000 = £40,000.
Deduct management expenses: £40,000 − £15,000 = £25,000.
Taxable total profits are £25,000, with no unrelieved loss to carry forward.
Since profits are below £50,000 the small profits rate applies: £25,000 × 19% = £4,750.

Answer: Taxable total profits are £25,000 and corporation tax is £4,750. The whole loss is used against current-period total profits.

Exam tips

Show a source-by-source layout. Markers award marks for correct classification.
Always say why an item is excluded, for example capital or exempt dividend.
If asked to advise on losses, compare the options and say which gives earlier relief.
Check for associated companies and short accounting periods before choosing the rate.
Use the professional skills marks: keep advice short, clear and tied to the client facts.

Practice questions from Corporation tax: the scope of corporation tax, including close companies and investment companies

Investment Companies and Property Income in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Investment Companies and Property Income: frequently asked questions

What is the difference between a trading company and an investment company?

A trading company earns profits from a trade and gets trading deductions and capital allowances on that trade. An investment company earns income from property, loans or shares and gets relief for management expenses instead. Losses follow different rules for each.

What counts as management expenses of an investment company?

They are revenue expenses of managing the investment business, such as administration, accountancy and directors' pay. Capital items and costs already deducted in the property business computation are excluded. Unused expenses carry forward.

How are UK property business losses relieved by a company?

The loss is set against the company's total profits of the same accounting period. Any unused amount is carried forward against total profits of later periods. Always check the facts and conditions given in the question.

Are dividends received by an investment company taxable?

UK dividends are normally exempt from corporation tax, so they are left out of taxable total profits. They are added to taxable total profits to get augmented profits, which decide the rate and marginal relief.