Key takeaways
- Companies pay Corporation Tax on interest, rental income and chargeable gains, at 19% to 25% depending on total profits.
- Most dividends received by UK companies are exempt from Corporation Tax.
- Gains on shares in trading companies can be exempt under the substantial shareholding exemption where the company held at least 10% for 12 months.
- Indexation allowance on company gains was frozen at December 2017.
- A close investment-holding company pays the 25% main rate on all its profits.
Many companies hold investments alongside their trade, from cash on deposit to property and shares, and some exist only to hold investments. Corporation Tax treats each kind of investment income differently, and the result is not always what owners expect.
The rates
All of a company’s taxable income and gains are added together and taxed at the Corporation Tax rate for its total profits:
| Profits | Rate (financial year 2026) |
|---|---|
| Up to £50,000 | 19% |
| £50,001 to £250,000 | 25% less marginal relief |
| Over £250,000 | 25% |
The limits are divided between associated companies. A close investment-holding company pays 25% on all its profits, whatever their size. See close company rules.
Interest: the loan relationship rules
Interest received on bank deposits, loans made by the company, and corporate bonds is taxed under the loan relationship rules:
- income is generally taxed as it accrues in the accounts, not when received
- interest on loans made for trade purposes is part of trading profits; other interest is a non-trading loan relationship credit
- interest paid on borrowing for investment purposes is a non-trading debit, which can be set against other income or carried forward
- foreign exchange movements on loans are usually taxable or deductible too
Rental income
Rent from UK property is taxed as profits of a UK property business, after deducting expenses. Unlike individual landlords, companies can deduct finance costs such as mortgage interest in full (through the loan relationship rules), because the residential finance cost restriction applies only to individuals. Large companies may be affected by the corporate interest restriction if net interest exceeds £2 million.
Property held by companies may also be within the Annual Tax on Enveloped Dwellings (ATED) if it is a residential property worth over £500,000 and not used in a qualifying business such as letting to unconnected tenants.
Dividends received
Most dividends received by UK companies are exempt from Corporation Tax:
- small companies (broadly fewer than 50 employees and turnover or balance sheet total of €10 million or less) are exempt on dividends from UK companies and companies in qualifying territories
- larger companies are exempt if the dividend falls into one of the exempt classes, such as distributions from controlled companies or on portfolio holdings of less than 10%, which covers most cases
Exempt dividends still count as “franked investment income” when working out which Corporation Tax rate applies, except for dividends from 51% subsidiaries.
Chargeable gains
Gains on selling investments, such as shares in other companies or investment property, are chargeable gains taxed at the company’s Corporation Tax rate. Companies do not get the individual annual exempt amount.
Indexation allowance
Companies can deduct indexation allowance, which adjusts the cost for inflation, but only up to December 2017, when it was frozen. Assets bought after December 2017 get no indexation.
The substantial shareholding exemption
Gains on disposals of shares are exempt if:
- the selling company has held at least 10% of the ordinary shares for a continuous 12 months in the six years before the sale
- the company sold is a trading company or the holding company of a trading group
This lets groups sell trading subsidiaries without Corporation Tax on the gain. Losses on such disposals are not allowable.
Example
A trading company with a 31 March 2027 year end has trading profits of £120,000, bank interest of £8,000, a gain of £30,000 on selling investment property and dividends of £5,000 from a listed UK company (not a 51% subsidiary).
| Item | Treatment |
|---|---|
| Trading profits | £120,000 taxable |
| Interest | £8,000 taxable |
| Gain on property | £30,000 taxable |
| Dividends | Exempt, but £5,000 added to augmented profits for the rate test |
| Taxable total profits | £158,000 |
Corporation Tax is 25% of £158,000 less marginal relief based on augmented profits of £163,000. Our Corporation Tax calculator works through marginal relief.
Investment companies
A company whose business consists wholly or mainly of making investments can deduct management expenses, such as administration and adviser fees, against its investment income. Unused management expenses can be carried forward and surrendered as group relief.
Frequently asked questions
Do companies pay Corporation Tax on dividends they receive?
Usually not. Most dividends received from UK and foreign companies are exempt, although they count when deciding which Corporation Tax rate applies.
Can a company deduct mortgage interest on rental property?
Yes. Companies deduct finance costs in full, unlike individual landlords, whose relief is restricted to a 20% tax credit.
Do companies get indexation allowance?
Only up to December 2017, when it was frozen. Assets acquired after that get no indexation.
What is the substantial shareholding exemption?
An exemption from Corporation Tax on gains when a company sells shares in a trading company in which it held at least 10% for 12 months.
Sources
Rates, thresholds and rules in this guide were checked against HMRC and GOV.UK guidance in October 2026. Tax rules change, so check the current position on GOV.UK or with a qualified adviser before acting. This guide is general information, not personal advice.