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CGT on profit/loss from an investment company

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I have a question that even my accounting body did not want (or couldn't) answer!

A new client runs an incorporated investment company.  It collects dividends and interest and makes profits/losses from dealing in shares and UTs

I have heard that for investment company the shares it holds are viewed as 'stock' and so any profit on transactions are treated as such and subject to corporation tax, whilst I have also heard that they are deemed to be assets and subject to CGT.

Who do you think correct?

Thanks for any contributions


Replies (5)

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By Wilson Philips
30th May 2020 13:25

There’s a distinction between dealing in shares and simply buying and selling. I don’t know, but I imagine that certain regulations etc apply to dealers. How frequent are the transactions?

You might want to have a look at BIM56810 and thereabouts and consider your client’s activities in that context. If you still can’t decide then it would seem that the obvious people to ask are HMRC. I doubt that anyone here - not knowing your client - will be able to answer definitively one way or the other.

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By Matrix
30th May 2020 12:58

You need to establish whether it is trading rather than assuming it is investing.

My accountancy body doesn’t answer tax queries either, I use my insurance providers’ helplines (both PII and Fee cover offer them).

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Hallerud at Easter
30th May 2020 13:28

The UTs are interesting irrespective of company status if reporting under FRS102,see Financial Instruments re same, the shares less so.

HMRC are not generally keen on considering the purchase and sale of shares as trading so I would be slightly surprised they would vary this just because a company is being used as the vehicle, however I suspect you are going to have to dig out case law re this to really gauge the lie of the land/gain comfort for your client.

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By johngroganjga
30th May 2020 13:51

Your tax terminology is not quite right. It’s corporation tax that the company will pay, whatever interpretation of its transactions applies. Companies don’t pay CGT.

Have you stopped to consider what difference the issue you raise will make to the tax the company actually pays?

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Replying to johngroganjga:
By Wilson Philips
30th May 2020 14:49

Good point, John - possibly very little difference, unless there are net losses kicking around.

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