Under Corporation Tax rules, what rates apply to trading profits and investment income?

• A. 12.5% on trading profits and 25% on investment income and realised gains.
• B. 25% on trading profits and 12.5% on investment income and realised gains.
• C. 12.5% on both their trading profits and on investment income and realised gains.
• D. 25% on both their trading profits and on investment income and realised gains.

Answer: (A)

In this tax setup, profits from the ordinary trading activities of a company are taxed at a lower rate to support active business operations, while income that comes from investments and gains from disposing of assets are taxed at a higher rate. So trading profits get the 12.5% rate, reflecting the lower tax on day-to-day business earnings. Investment income and realised gains—money earned from investments like interest or rents and gains from selling assets—fall into the higher rate category of 25%. That combination matches how the regime treats active trading versus passive income and capital disposals, which is why this option is correct. The other possibilities mix the rates or apply a single rate to all income types, which does not align with the standard treatment of trading versus investment income and gains.