Companies that own property and shares: what we can file

Short version. A company that owns rental property and a portfolio of UK listed shares has several different kinds of income, and Corporation Tax treats each one differently. We support all of them: rent in box 190, dividends received in box 620 (exempt from tax but still relevant to your rate), gains on selling property or shares in boxes 210 to 220, and the shares themselves on the balance sheet as Investments. The two things to check before you start are whether you are within the micro-entity size limits, and whether you are content for the property and shares to be carried at cost rather than market value, because FRS 105 does not permit fair value.

The four things to separate

Most of the confusion here comes from treating "the company made money" as one number. HMRC does not. Each stream has its own character, its own box, and its own rules about what it can be offset against:

Rental income

Rent is not trading income. HMRC taxes it separately as a UK property business, so it goes in its own box rather than into turnover. Enter one net figure: rent received less allowable letting costs, including any mortgage or loan interest on the property. If the letting made a loss we apply the relief rules for you. Full detail in property income and losses.

Dividends received

Dividends your company receives from other companies are exempt from Corporation Tax under Part 9A of the Corporation Tax Act 2009. No tax is charged on them.

They are not irrelevant, though. Section 279G of the Corporation Tax Act 2010 adds exempt distributions to your taxable profits to produce augmented profits, and it is augmented profits that decide whether you pay the 19% small profits rate, the 25% main rate, or something in between. So a dividend that is never taxed can still increase your bill by moving you into marginal relief. We report the figure in box 620 and apply the rate rules automatically. There is a worked example in dividends received and your Corporation Tax rate.

Selling property or shares

A sale at a profit is a chargeable gain, not rental income and not turnover. It is added to your taxable profits and charged at normal Corporation Tax rates. We file boxes 210 to 220, set your capital losses against the gains and carry any remainder forward.

One important limit: you work out the gain and we file it. We do not compute it for you. For property that means deducting the original cost, buying and selling costs, improvements, and indexation allowance if the company held the asset before January 2018 (indexation was frozen at December 2017). For a share portfolio it also means applying the share identification and pooling rules, which decide which shares you are treated as having sold when you have bought the same holding at different times. Those rules are genuinely fiddly and we do not automate them. See chargeable gains for the calculation and the disposals that need an accountant.

Where the shares sit on the balance sheet

Shares held as an investment go in the Investments line within Fixed assets, which you will find behind the optional-lines link in the balance sheet section. We tag them correctly in the iXBRL accounts we file.

Enter what the company paid, less any permanent fall in value. Not the current market price. That is not a simplification on our part, it is what FRS 105 requires, and the next section explains why it matters.

Company running costs

Where your running costs go depends on what they relate to, and getting this right matters because different costs can be set against different income:

• Costs of letting the property (agent fees, repairs, insurance, loan interest) are deducted inside your net property figure, before it reaches box 190.
• Costs of a trade, if the company also trades, sit in your normal cost of sales and administrative expenses.
• Costs of managing the investments themselves are a separate category in law, called expenses of management of an investment business (section 1219 of the Corporation Tax Act 2009). They are deducted from total profits rather than from any one income stream.

A cost cannot be counted twice. Section 1219(3)(b) is explicit that an expense is not a management expense so far as it is already deductible in calculating a component of total profits, so letting costs you have already netted against rent cannot be claimed again. Expenses of a capital nature never qualify either.

If your company trades, or if its costs are all letting costs, this distinction will not usually change anything. If the company holds investments and its running costs are genuinely costs of managing them, please contact us before filing so we can check the treatment with you.

The FRS 105 rules we follow

We prepare micro-entity accounts under FRS 105. Two features of that standard matter a great deal to a company holding property and shares, and they are the most common reason we turn out to be the wrong fit:

Everything is at historical cost. FRS 105 does not permit revaluation or fair value accounting at all. Investment property is carried at cost less depreciation and impairment, and investments are carried at cost less impairment. If you want the property or the portfolio shown at market value, you need FRS 102 Section 1A accounts, which we do not produce. That is a real limitation, not a preference, and it is worth deciding early because it affects the figures on your balance sheet rather than just their presentation.

The balance sheet is deliberately brief. The micro-entity format asks for a single "Fixed assets" total rather than a breakdown. We show intangible assets, tangible assets and investments as separate lines because it is more informative and Companies House accepts it, and all three are added into the Fixed assets total that gets filed.

Whether you can use us at all

To file micro-entity accounts your company needs to meet at least two of these three limits: turnover of £632,000 or less, a balance sheet total of £316,000 or less, and 10 employees or fewer. A company that owns property outright often exceeds the balance sheet limit, so this is worth checking before anything else. See what is a micro-entity.

Separately, the micro-entity regime excludes certain companies by law, including investment undertakings and financial holding companies. That definition is narrow and aimed at collective investment vehicles rather than an ordinary company that happens to hold some shares, but if your company exists purely to pool other people's money it will not qualify.

We also file for one company at a time, with no subsidiaries, parent companies or associated companies. See which company types we support.

When you need an accountant

• You need the property or investments at fair value (FRS 102 Section 1A).
• You are over the micro-entity size limits.
• The company is part of a group or has associated companies.
• A disposal involves a connected party, might qualify for the Substantial Shareholdings Exemption, or is an ATED-related or non-resident gain.
• You are unsure how to apply the share pooling rules to your portfolio.

This article is general guidance, not tax advice. The treatment of a specific cost or disposal can involve judgement, and the amounts here can be large enough that it is worth paying for an hour of an accountant's time to be sure.