A close investment holding company (CIHC) is a close company that does not exist wholly or mainly to trade, to let property to unconnected tenants, or to serve a trading or property group. Under section 18N of the Corporation Tax Act 2010 it pays corporation tax at the main rate, 25% for the financial year 2026, on all its profits, with no small profits rate and no marginal relief.

Why does a CIHC pay the main rate on small profits?

Since 1 April 2023 most companies pay 19% on profits up to 50,000 pounds, the main rate of 25% above 250,000 pounds, and a tapered rate in between through marginal relief. Those figures are unchanged for the financial year beginning 1 April 2026. A CIHC is excluded from both the small profits rate and marginal relief, so it pays 25% from the first pound of profit, whatever its size and however many associated companies it has (CTM03951).

The rule exists to stop individuals sheltering investment income in a company at a lower rate than they would pay personally. It was introduced in 1989 to replace the old close company apportionment rules, which taxed shareholders on undistributed income. Unlike those rules, the CIHC test ignores the company’s dividend policy and looks only at why the company exists (CTM60705).

How is a CIHC defined?

The definition is negative. Every close company is a CIHC for an accounting period unless, throughout that period, it exists wholly or mainly for one or more of these purposes (s18N(2), CTM60710):

  1. carrying on a trade or trades on a commercial basis;
  2. making investments in property that is, or is intended to be, let commercially to people who are not connected with the company or related to a connected person;
  3. holding shares in, or making loans to, companies that are qualifying companies, or intermediate holding companies that exist mainly to hold such companies;
  4. coordinating the administration of two or more qualifying companies;
  5. the purposes of a commercial trade carried on by a qualifying company or by a company that controls it;
  6. the purposes of property letting of the kind in point 2 carried on by a qualifying company or by its controlling company.

A “qualifying company” is one under the control of the candidate company, or of a company that controls it, which itself exists wholly or mainly to trade or to let property in that way (s18N(4), CTM60750). A company that is not close can never be a CIHC.

Which companies escape the definition?

In practice the main exclusions are:

  • Trading companies, including those with surplus cash, provided trading remains the main purpose throughout the period.
  • Property investment companies letting to unconnected tenants. Buy to let and commercial letting companies normally fall here, and so are entitled to the small profits rate if their profits are low enough.
  • Holding companies of trading or property groups. HMRC confirms that s18N(2)(c) takes the parent of a trading group or property investment group outside the definition, even where the group is just the parent and one subsidiary, and also covers an ultimate parent above an intermediate holding company and a company that exists to make loans to fellow trading or property subsidiaries (CTM60760).
  • Group service companies that exist to coordinate administration for, or to serve the trade or letting of, other group companies (CTM60770).
  • Companies in the first period of a winding up, if they were not a CIHC in the period immediately before liquidation began (s18N(5), CTM60780).

When does a letting company become a CIHC?

The property exclusion fails if the property is let, or intended to be let, to a person connected with the company. “Connected” takes its meaning from CTA 2010 s1122, so a company controlled by an individual is connected with that individual, and two companies under common control are connected with each other (CTM60740). The exclusion also fails for lettings to:

  • the spouse or civil partner of a connected person;
  • a relative of a connected person, meaning a brother, sister, ancestor or lineal descendant;
  • a relative of the connected person’s spouse, or the spouse of such a relative.

HMRC’s own example is a letting to the father in law of an individual connected with the company, which takes the company out of the exclusion (CTM60740). A director’s company that lets a flat to the director’s daughter at a full market rent is therefore at risk, even though the rent is commercial. The question is whether the company still exists wholly or mainly for unconnected letting; a single connected letting within a large portfolio may not change the main purpose, but a company whose only property is let to family will usually be a CIHC. Connected lettings raise other issues too, covered in the buy to let through a company guide.

How do “purpose” and “wholly or mainly” work?

The test looks at the purpose for which the company exists, which is not necessarily what it did in a given period. A company may exist to trade even in a period in which it earns no trading income, though HMRC says this would be exceptional (CTM60720). The purpose must be met throughout the accounting period, so a change part way through can fail the test for the whole period.

Where a company has significant income from more than one source, HMRC’s officers look at the relative levels and sources of income, what the company has actually done, what board minutes and other documents show and the nature and use of its assets (CTM60730). Indicators that prompt questions include a preponderance of non rental investment income, lettings to connected persons and liquidation (CTM60710).

What does the difference cost?

Illustration only. Two close companies each have taxable profits of 40,000 pounds for the year to 31 March 2027 and no associated companies. Gamma Ltd lets three shops to unconnected retailers. Delta Ltd holds a share portfolio and bank deposits for the family that owns it.

Company Status Rate Corporation tax
Gamma Ltd Not a CIHC (unconnected letting) 19% small profits rate 7,600
Delta Ltd CIHC 25% main rate 10,000

Delta’s profits are computed in the normal way. CIHC status does not restrict its deduction for interest or for management expenses (CTM60705), so the guidance in management expenses for investment companies still applies. Most UK dividends Delta receives are also exempt, so the main rate often bites mainly on interest and chargeable gains.

Where do people go wrong?

  • Family investment companies. A family investment company holding shares and cash will almost always be a CIHC. Planning that assumes a 19% rate on its income is wrong from the outset.
  • Former trading companies. A company that sells its trade and keeps the proceeds on deposit can become a CIHC once trading is no longer its purpose. A short gap before a formal liquidation begins can lose the s18N(5) protection; HMRC has undertaken to review cases where a short gap was unavoidable (CTM60780).
  • Cash rich holding companies. A parent that holds subsidiaries but also a large investment portfolio may fail the “wholly or mainly” test.
  • Connected lettings. Letting to relatives or to the shareholders’ own trading company can remove the property exclusion.
  • Assuming non close status. The test applies only to close companies, so check control first under the close company rules.

A company in administration does not get the liquidation protection; its status is decided on the facts in the usual way (CTM03951). The legislation is CTA 2010 s18N, and HMRC’s guidance runs from CTM60700 in the Company Taxation Manual.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.