A company whose business consists wholly or partly of making investments can deduct its expenses of managing that investment business from its total profits under section 1219 of the Corporation Tax Act 2009. The expense must relate to managing the investments, must not be capital and must not be deductible elsewhere in the computation; unused amounts are carried forward.

Which companies can claim management expenses?

Relief is available to a “company with investment business”, defined in CTA 2009 s1218B as any company whose business consists wholly or partly in the making of investments (CTM08040). Before April 2004 the test was “wholly or mainly”, so trading companies with a side portfolio could not claim. From accounting periods beginning on or after 1 April 2004 the wider test applies, and HMRC accepts that all but the pure trading company is likely to qualify (CTM08060).

Typical claimants include:

  • holding companies whose income is dividends, interest and management charges from subsidiaries;
  • personal and family investment companies holding shares, funds or cash;
  • property investment companies, for the part of their costs that is not deducted in the property business computation;
  • trading companies that also run a genuine investment portfolio.

The company must actually have an investment business. A dormant shell holding one share in a subsidiary may struggle to show it has any business at all, and HMRC treats that as a separate question (CTM08060).

What counts as an expense of management?

Section 1219 allows the expenses of managing the company’s investment business, not the expenses of the businesses in which it invests. Case law draws the line between the cost of managing investments and the cost of the investments themselves; the leading statement is in Capital and National Trust Ltd v Golder, where the court focused on expenses of management rather than expenses incurred by the management in carrying on the company’s business (CTM08150).

In practice, the following are usually allowable if reasonable in amount: directors’ and staff remuneration for running the portfolio, investment advisers’ and custody fees, accountancy and audit fees, company secretarial costs, office costs and bank charges. Directors’ pay is tested on similar principles to a trading company, and the courts have allowed only the part that reasonably reflects the services actually rendered (CTM08330, following L G Berry Investments Ltd v Attwooll).

Three statutory exclusions then apply:

  1. Capital expenditure is excluded by s1219(3)(a) (CTM08250).
  2. Amounts deductible elsewhere are excluded by s1219(3)(b). Costs of a property business must be deducted in the property business computation, not as management expenses (CTM08440).
  3. Investments held for an unallowable purpose, meaning a purpose that is not a business or commercial purpose of the company or relates to activities outside the charge to corporation tax, do not generate relief (s1220, CTM08215).

Unlike trading profits, there is no “wholly and exclusively” test in s1219 (CTM08170). That does not make everything deductible: the test is simply whether the cost is an expense of managing the investment business, and HMRC’s view is that an expense disallowable for a trader is unlikely to qualify.

Where is the line on buying and selling investments?

The direct costs of changing investments, such as brokerage and stamp duty, are not management expenses (CTM08190). Following Camas plc v Atkinson, costs of appraising and investigating possible acquisitions are generally allowable up to the point at which a decision to acquire is made. After that, costs of implementing a purchase already decided upon are capital and excluded (CTM08260).

HMRC regards an offer to the target, including an indicative or conditional offer, as evidence that the decision has been made. On disposals, it treats the decision to market the asset as the cut off point. Success fees are usually capital, and abortive costs follow the same rule as successful ones (CTM08190, CTM08260).

Can a holding company deduct costs relating to its subsidiaries?

A holding company has no special status under s1219 just because it heads a group. Its expenses must relate to managing its own investments, not the trades of its subsidiaries (CTM08180). Where management of the parent and the subsidiaries is intermingled, HMRC says in practice it need not disallow costs that would have been allowable to the subsidiary, provided the parent arranges to recharge future costs to it. The wider structure is covered in holding companies: tax pros and cons.

When is relief given?

For periods beginning on or after 1 April 2004, expenses are deductible in the accounting period in which they are debited in GAAP compliant accounts (s1224, CTM08560). Two timing rules override that:

  • remuneration not paid within nine months of the end of the period of account is deductible only when paid (s1249, CTM08470);
  • where a period of account exceeds 12 months, expenses are apportioned between the accounting periods on a time basis unless that is unjust (CTM08560).

The deduction for current year expenses is mandatory and needs no claim. It is taken from total profits before any claim to set trading losses against the same profits (CTM08580, CTM08610). Where VAT on the expenses is not recoverable as input tax, the VAT is part of the deduction (CTM08580).

What happens to excess management expenses?

Excess expenses are carried forward and treated as management expenses of the next accounting period; they cannot be carried back (s1223, CTM08620). Since 1 April 2017:

  • a claim is needed to use carried forward expenses, made within two years of the end of the period in which they are used (CTM08620);
  • carried forward amounts count towards the corporate loss restriction, which limits use of brought forward losses above a 5 million pound allowance to 50% of profits (CIRD13540);
  • current year excess expenses can be surrendered as group relief, and carried forward amounts arising from 1 April 2017 may be surrendered as group relief for carried forward losses (CTM08620).

The company must continue to carry on the investment business to carry the expenses forward. A company that sells its portfolio and becomes dormant loses them.

Unused property business losses of a company with investment business that stops its property business are treated as management expenses of the next period, so they are not lost if the investment business continues (PIM4235).

How does a computation look?

Illustration only. Beta Investments Ltd holds a share portfolio and a cash deposit. For the year to 31 March 2027 it has interest income of 30,000 pounds, a chargeable gain of 20,000 pounds and dividends from UK companies of 40,000 pounds, which fall within the distribution exemption in CTA 2009 Part 9A and are not taxed (INTM651020). Its costs are a director’s salary of 15,000 pounds, portfolio management fees of 12,000 pounds, accountancy of 4,000 pounds and broker commission on purchases of 3,000 pounds.

Item Pounds
Interest (non trading loan relationship credit) 30,000
Chargeable gain 20,000
Total profits 50,000
Less management expenses (15,000 + 12,000 + 4,000) (31,000)
Taxable total profits 19,000

The broker commission is a direct cost of changing investments and so is not a management expense (CTM08190). The exempt dividends do not reduce the deduction, because the restriction in s1222 for untaxed income does not apply to franked investment income (CTM08580). If Beta is a close company that does not exist mainly to trade or let property to unconnected tenants, its taxable profits are charged at the main rate; see close investment holding companies.

What mistakes come up most often?

  • Deducting property repairs or letting agent fees as management expenses instead of in the property business computation.
  • Claiming due diligence and legal fees incurred after an offer has been made for a target company.
  • Paying a director a salary out of proportion to the work involved in running a modest portfolio.
  • Forgetting the claim needed to use brought forward expenses, or losing them by letting the investment business lapse.
  • Presenting an investment company’s return in trading format and treating excess expenses as trading losses; HMRC asks for them to be dealt with under s1219 (CTM08580).

HMRC’s guidance is in the Company Taxation Manual from CTM08000, and the general framework for working out profits is in corporation tax explained.

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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.