Linked investment company: keeping surplus cash away from your trade

It is an ordinary limited company, owned by you and linked to your trading business, whose job is to hold investments or surplus cash. It may sit beneath a holding company as a sister to the trading company, or be owned directly by you outside the group. There is no legal definition of the term. It is a practical label for keeping investments away from the trade.

No. We could not find the phrase in tax legislation or HMRC guidance, and you may see it called a personal investment company or a linked investment holding company. HMRC will simply look at what the company does, and tax it as an investment company. The label matters less than where it sits, who owns it and how the cash gets there.

Because it can damage valuable reliefs and expose the investments to trading risk. If non-trading activity becomes substantial, HMRC treats more than 20% as substantial, Business Asset Disposal Relief and the substantial shareholding exemption can be lost. Business Relief for inheritance tax can be restricted too. Creditors of the trading company could also reach the investments if the trade fails.

Because of the personal tax cost. Taking surplus cash as a dividend in 2026/27 is taxed at 10.75%, 35.75% or 39.35%, after a £500 allowance, before a penny is invested. Paying it as a tax-free dividend to a holding company, and then passing it down to an investment subsidiary, lets the full amount be invested. The structure is what makes that route possible.

It depends on your priorities. Inside, under a holding company, cash moves easily and tax-free, but the group is still judged as a whole for trading status. Outside, owned directly by you, it is clear of the trading group tests, but getting cash there usually means a taxed dividend or a demerger. We weigh the two against your plans for a sale or succession.

Yes, in two ways. A company under your control is normally an associated company, so the £50,000 and £250,000 profit limits for the lower rates are divided between the companies. And a company that mainly holds investments is a close investment-holding company, which pays the 25% main rate on all profits, with no small profits rate or marginal relief.

Where it exists wholly or mainly for permitted purposes, such as carrying on a trade, or letting land commercially to people who are not connected with the owners. A company that holds shares in trading companies it controls, or coordinates them, can also qualify. A company holding shares, funds, bonds or cash is generally caught. The test is in section 18N of the Corporation Tax Act 2010.

Usually as a dividend. If a holding company owns both, the trading company pays a dividend up to the holding company, which is normally exempt from corporation tax, and the holding company then subscribes for shares in, or lends to, the investment company. If the investment company is owned by you personally, a dividend to you is taxed first. The route should be planned and documented.

It can make a sale cleaner. With surplus cash and investments held elsewhere, a buyer is not paying for assets it does not want, and the trading company is easier to show as a trading company. If a holding company sells the trading subsidiary after 12 months of ownership, the substantial shareholding exemption can remove the corporation tax on the gain, and the investment company is unaffected.

It helps only if the investment company sits outside the group, or is small enough not to make the group's non-trading activity substantial. Business Asset Disposal Relief for a share sale is judged on the group as a whole, and an investment subsidiary inside it counts. The relief is now 18% on up to £1m of lifetime gains, so protecting it is worth a lot.

It can protect Business Relief on the trading side by keeping investments out of it, since shares in a company that mainly holds investments do not qualify. Business Relief gives 100% relief on the first £2.5m of qualifying business property per person from 6 April 2026. The investment company's own shares generally attract no relief, so it is usually a candidate for other inheritance tax planning.

Yes, and that is one of its attractions. Because ownership can differ from the trading group, a spouse or children can hold shares in the investment company. Be aware, though, that gifting shares in an investment company does not qualify for the gift holdover relief which applies to trading company shares, so a gain may arise. This is where it overlaps with a Family Investment Company.

A linked investment company is defined by its link to a trading business, since it receives surplus cash from it. A Family Investment Company is defined by its purpose, which is holding wealth for the family over generations, usually with different share classes. One can be the other, and many owners use their surplus trading profits to fund a Family Investment Company.

Yes, and property is a common choice. An investment company letting residential or commercial property to unconnected tenants may not be a close investment-holding company, because letting land commercially is a permitted purpose. Stamp duty land tax, higher rates on additional dwellings and other property taxes still apply, so the choice of company and the purchase should be planned together.

It can, but loans between connected companies need care. Interest is taxable income of the lender, repayment terms matter, and a loan that a trading company leaves outstanding can drift into questions about its trading status and about whether the cash is really needed in the business. We usually prefer a dividend route where the structure allows, and advise on loans case by case.

Not necessarily, but it gets harder. Reliefs such as Business Asset Disposal Relief look back over two years, and the substantial shareholding exemption over a 12-month period, so the sooner the cash is separated, the better. How you do it matters, for example through a dividend, a demerger or spending the cash on the business. We look at the facts and the timetable.

Using a separate company for investments is ordinary commercial planning, and nothing in the law forbids it. The risks lie in how it is set up and funded. Since 26 November 2025 a stricter main purpose test applies to share exchanges and reconstructions, so reducing capital gains tax or corporation tax must not be a main purpose of the steps. We keep each step commercial and seek HMRC clearance where it makes sense.

It depends on the route. A new subsidiary or sister company funded from tax-exempt dividends can cost little in tax, while moving existing investments or property into it can trigger gains or stamp duty and land tax. Annual costs include accounts and a tax return. The sums should be compared with the relief you stand to protect, which we set out before you decide.