Income and Corporation Taxes Act 1988

5 (1) For the purposes of this Chapter, “estate or trading income” means estate income and trading income.

(2) For those purposes “estate income” means income which is chargeable to tax under Schedule A or Schedule B, and income (other than yearly or other interest) which is chargeable to tax under Schedule D, and which arises from the ownership or occupation of land (including any interest in or right over land) or from the letting furnished of any building or part of a building, but does not include trading income.

(3) For those purposes “trading income” means income which is not investment income for the purposes of paragraph 7(1) below; and, where the following conditions are satisfied with respect to a close company, that is to say—

(a) that its activities consist wholly or mainly of the carrying on of a trade; and

(b) that the trade consists wholly or mainly of one or more of the following, that is to say, life assurance business (within the meaning of section 431), insurance business of any other class, banking, money lending, financing of hire-purchase or similar transactions, or dealing in securities;

its income incidental to that trade shall also be trading income.

(4) For the purposes of sub-paragraph (3) above income of a company is incidental to its trade if, and only if—

(a) it is derived from investments (other than investments in a 51 per cent. subsidiary) or is interest on a debt; and

(b) any profit on the sale of the investments would be a trading receipt, and the debt, if proved to be a bad debt, would be allowed as a deduction in computing the company’s trading income for the purposes of corporation tax.