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

Marlow Ltd is a UK resident close company. For the year to 31 March 2026 it has taxable total profits of £200,000 from letting commercial properties to unconnected tenants and no other income. It has no associated companies. Marlow Ltd's sole activity is property letting and it has no connected tenants. Which statement about the rate of corporation tax is correct?

Marlow Ltd is not a close investment-holding company because it lets land and buildings to unconnected persons. It is therefore eligible for the small profits rate and marginal relief, rather than a flat 25% rate, and its profits of £200,000 fall within the marginal relief band.

  1. AIt is a close investment-holding company, so the main rate of 25% applies to all profits
  2. BIt is not a close investment-holding company because it lets property to unconnected persons, so marginal relief applies to its profits between £50,000 and £250,000Correct
  3. CIt is a close investment-holding company, but the small profits rate of 19% applies because profits are below £250,000
  4. DIt is not a close company, because letting property is not a trade

Explanation

A company whose business is wholly or mainly making investments is a CIC, except where it is wholly or mainly letting land and buildings to unconnected persons. Marlow therefore falls outside CIC and the small profits rate and marginal relief rules apply. Profits are £200,000, between the limits, so marginal relief: (250,000 - 200,000) x 3/200 = £75... on full profits, giving tax of 25% x 200,000 = 50,000 less 75 x 200/200 = 75 x 1... in total £49,925? The key point: the 25% flat rate for a CIC does not apply.

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