Companies with Investment Business

An investment company is a business primarily involved in making investments and deriving the majority of its income from them. However that does not apply to the holding company of a trading group.

Identifying an investment company is crucial, as it determines the tax treatment of certain important transactions and activities, for example whether companies may claim relief for capital losses on the sale of shares against income.

Management Expenses

Management expenses are costs incurred in managing an investment company’s activities. These expenses are normally tax deductible provided they meet specific criteria. However expenses that are of a capital nature are not deductible as management expenses.

For an expense to qualify for deduction, it must be directly related to the company’s investment business. Additionally the expense must not be incurred for an unallowable purpose. An unallowable purpose includes investments not held for business or commercial reasons or investments outside the scope of corporation tax.

Unallowable purposes include:

• Investments held for social or recreational purposes.

• Investments of a non-UK resident company with a permanent establishment in the UK, where the investment is not part of the permanent establishment's business.

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Examples of Deductible Management Expenses:

·         Commission Fees: Paid to agents like stock brokers for managing the investment portfolio.

·         Capital Allowances: On plant used to manage investments, such as computers and equipment for monitoring.

·         Salaries: Including reasonable salary costs and redundancy expenses.

·         Premises Costs: Related to offices used for managing investments.

·         Audit and Accountancy Fees.

Relief for Management Expenses

Management expenses are deducted from the company’s total profits in the current accounting period. This relief is automatic and mandatory.

These expenses are deducted before any qualifying charitable donations or loss relief claims. If the management expenses exceed the company’s gross income and gains in the current period, the excess can be carried forward and set against future profits.

Speak to an Expert

If you operate an investment business or have made investments through your trading company and are uncertain about how to claim relief for expenses, don’t hesitate to contact our team for a no-obligation initial consultation.

Authored by: London Tax Team