What is a close investment-holding company?
Short version. A close investment-holding company is a close company that does not meet the statutory permitted-purpose test for its accounting period, unless the limited winding-up exception applies. CIHC status prevents small profits rate and marginal relief.
On this page
1. Understand the treatment
The close company definition includes control by five or fewer participators, or participators who are directors, and an alternative winding-up entitlement test. Attribution rules and exceptions also apply. A family-owned company commonly needs to consider this definition, but its name does not establish the answer.
Under section 18N(2) to (4) and (6), permitted purposes cover commercial trading, commercial letting of land, specified holdings of shares or securities and loans to qualifying companies, co-ordinating qualifying companies, and supporting specified group trading or land investment purposes.
A qualifying company must meet both the control and commercial trading or letting conditions. The land-letting rule excludes connected persons and the specified relatives and relationships in subsection (3). Read the linked full list before deciding. The test asks why the company exists wholly or mainly throughout the period, not just which income line is largest.
Section 18N(5) applies where a company is wound up and was not a CIHC in the period ending immediately before the winding up starts. It is then not treated as a CIHC in the subsequent accounting period. Voluntary strike-off is not that winding up. HMRC says administration does not qualify for this exception.
2. Fictional worked example
In a fictional 12-month period wholly after 1 April 2023, a close company exists mainly to hold bank deposits, with £20,000 taxable profits and no qualifying exception. As a CIHC it pays £5,000 at 25%. A different company mainly letting land commercially to unconnected tenants may meet a permitted purpose. Apply the full test to its facts.
For ordinary non-ring-fence profits, the single-rate regime ran from 1 April 2015 to 31 March 2023. The CIHC exclusion from the restored small profits rate and marginal relief matters from 1 April 2023. A return crossing that date uses each financial year’s applicable rate.
3. Common mistakes
- Treating any trading income as an automatic exemption from CIHC status.
- Using the same status for two returns without considering each accounting period.
- Treating a planned strike-off as the winding-up exception.
4. How to file
SimpleCompanyTax prepares supported micro-company returns from your figures. Follow the exact filing steps and review each return’s computation before approving the filing. For more background, read family investment company rates and CT600 box 4 code 2.
This is general guidance. Your company’s treatment depends on its circumstances. Decide the classification and claims yourself or with your accountant.