What is close investment holding company?

A ‘close investment holding company’ (CIC) is a specific type of company defined in UK tax law, particularly in the Corporation Tax Act 2010. The definition is notably negative, which means it’s easier to understand what a CIC is not rather than what it is.

According to the legislation (CTA 2010, s 18N(1), (2)), a close company will be classified as a CIC if it does not exist wholly or mainly for trading commercially, investing in land for unconnected letting, or acting as a holding or service company within a group that primarily exists to trade or invest in land for letting.

To illustrate, if a company’s main activity is owning a property that it lets out to someone connected to the company, it would typically be classified as a CIC. This classification has significant tax implications, as CICs are subject to less favourable tax treatment compared to standard trading companies.

It is essential to recognize that being classified as a Community Interest Company (CIC) has significant tax consequences. CICs are required to pay corporation tax at the full rate, which is currently 25% as of 2023. Additionally, they are not eligible to claim relief from marginal small companies, resulting in a potentially higher tax burden compared to other types of companies.

Determining if a company qualifies as a CIC involves various factors, including the company’s activities, income nature, and shareholders’ intentions. Due to these complexities and potential tax implications, it is advisable for business owners and investors to seek professional tax advice when dealing with companies that might be classified as CICs. This professional guidance can provide confidence in navigating the complexities of CIC classification.

Understanding whether a company qualifies as a CIC is crucial for proper tax planning and compliance. The implications can be significant, affecting not only the company’s tax rate but also its ability to claim certain deductions or reliefs. HMRC closely scrutinizes these companies due to their potential use in tax planning strategies, making it essential to ensure proper handling of their tax affairs to avoid unintended tax liabilities.