Interactive Brokers: Limited Company Investment Account

This is a review of the popular Interactive Brokers investment platform. Interactive Brokers allow UK limited companies to open a company account. This is great news as more and more platforms allow LTD companies to invest in stocks & shares, mutual funds, ETFs, Forex, Options etc.

Interactive brokers account for UK limited companies
Interactive Brokers Small Business account for investing

I opened an account with IB after a lot of readers pointed out the platform benefits to me. Interactive Brokers are a well-known American firm who now operate in the UK too. I like the transparency and the fact that they’re listed on the stock exchange (NASDAQ: IBKR).

Companies that trade publicly means higher regulation and better protection to us, the customers. Customer money sits in a segregated account, as expected. Read more about how investors are protected here.

In my previous article, I demonstrated how to invest your company profits. A lot of people have done so through different brokers. I initially trusted Interactive Investors for my funds, but I have now switched to Interactive Brokers which is a low cost and trustworthy broker, in my opinion. Things I’m looking for in an investment platform are:

  • Low cost
  • Decent customer service
  • Solid coverage of the ETF universe
  • Strong reputation
  • Support for Limited Company accounts

It’s worth noting that Interactive Brokers only offer a limited selection of mutual funds for non-US investors. Initially, I thought this is a blocker, but then I remembered most of the index funds can be replaced with their ETF counterpart (or similar). They offer a huge selection of ETFs including those domiciled in the UK, US, Luxembourg, Ireland etc.

For example, Vanguard’s World VWRL ETF is a global stock market ETF. Then ETFs are great because they can be traded instantly, have tax advantages and are low cost too. So that’s covered for me.

Interactive Brokers are an advanced platform for professional traders. They offer stocks, ETFs, CFDs, Metals, Options, Futures and Forex among other options. For example, a major feature that took my attention is margin trading. This means you borrow money to invest. You pay some margin fees and have the option to invest more than you can.

They also offer a nice API if you want to do some algorithmic trading.

However, this does not mean IB cannot serve someone like myself – looking for a simple solution who just wants to invest 5-6 times throughout a year in a few tracker funds. I just like to keep it simple, but there are plenty of options to make it complex if that’s what you want.

Fees – Pricing

I’m not going to explain the whole range of fees as this depends on the country, order value, type of product etc. But I’m going to give you a brief overview of a small business account that places a few trades each year into stocks & ETFs in the UK which is one typical use case.

Interactive Brokers is really cheap compared to other brokers. They have both fixed fees and tiered solutions. You can choose which one you want to use.

ETFs and Stocks (Fixed fee)

Up to £50,000 GBP trade value – £6.00 per order

Then depending on the activity of the account, you pay a small fee if you don’t generate enough commissions.

Monthly Activity Fee = 0 if monthly commissions are equal to or greater than USD 10. (or currency equivalent)
If monthly commissions are less than USD 10,
Standard Activity Fee = USD 10 – commissions.

So for an account that places one ETF trade a month, the annual total charge would be
Trade commissions: £6.00 * 12 months = £72.00
Inactivity fee = (£10.00 – £6.00) * 12 months = £48.00
Total annual fee = £120.00

In my experience, this is a very low commission for a corporate account.

ETFs and Stocks (Tiered fee)

The IB pricing structure pleasantly surprised me. Their tiered trading fee starts from 0.050%, min £1.00 per trade for up to £40 million monthly trading volume.

The tiered fee is a great solution for those that want to place small trades a few times per month. Basically the break-even point is an average of £12,000 per trade above which it’s probably worth paying a fixed fee instead.

So a trade of £10,000 at 0.050% will cost £5.00. Even better, a trade of £1,000 will cost only £1. This is amazingly low. Sure you still have to pay a monthly activity fee but still. Assuming you place 10 x £1,000.00 trades each month, so in 12 months that’s 120 trades.

Total annual cost = £120.00.

I cannot stress how low this is compared to the typical £12.50 per trade of other brokers. Other brokers would charge £1,500 per year in trade expenses alone for a similar scenario.

How to open an Interactive Brokers limited company investment account

Opening a UK limited company account is not the easiest task but it’s all online and certainly doable within an hour or so. You will need to fill in certain company and personal information and upload documents to verify your details.

I won’t go into details of each and every screen, because most of them are straightforward. I’ll only explain the bits I found tricky.

There are 3 types of account for small businesses:

  • Cash account
  • Margin account
  • Portfolio Margin account

The main difference between Cash and the other two types of accounts are the ability to trade on margin. This means you can trade with borrowed funds. It also means you can lose more than your initial investment so beware.

Margin account requirements are rules-based whereas Portfolio Margin account requirements are risk-based according to the positions in your portfolio.

I opted for a Margin account. I do not plan to trade on margin anytime soon but would like the option to be able to do so in the future. Read this document from IB that explains what the margin benefits are along with their requirements.

Interactive brokers account type

Note: You can upgrade your Cash account to a Margin account later.

My company is just a vehicle for me to invest in stocks, shares and property. It does not really trade, but invest for the long term. This may or may not be the case for you.

Description of business
Description of business

The trickiest part of the application will probably be the one where you select your FATCA status. Luckily for me, I had to do it again for Vanguard in the past, therefore I was familiar with it. But it can be very confusing for people and brokers are not able to help either.

How to determine your FATCA status

The Foreign Account Tax Compliance Act (FATCA) is a 2010 United States federal law requiring all non-U.S. foreign financial institutions (FFIs) to search their records for customers with indicia of a connection to the U.S., including indications in records of birth or prior residency in the U.S., or the like, and to report the assets and identities of such persons to the U.S. Department of the Treasury.
Source: Wikipedia

Declare your FATCA classification

If you’re a UK-based LTD company you’re probably either an Active or a Passive Non-Financial Foreign Entity (NFFE), unless you’re a bank, pension trust or a public company. What “Foreign” really means is foreign from a US standpoint, as this is a US legislation.

From the IRS instructions (w8ben-e form), an Active NFFE is one that:
• Less than 50% of such entity’s gross income for the preceding calendar year is passive income; and
• Less than 50% of the assets held by such entity are assets that produce or are held for the production of passive income (calculated as a weighted average of the percentage of passive assets measured quarterly)

I’ve stumbled upon a very helpful FATCA decision tree by OneAccount and here’s its glossary. And here’s the long HMRC guidance notes PDF, if you want to kill some time.

My company is a Passive NFFE but that may not be the case for you. If you invest through the company you also trade with, this may not be the case for example. Or if you use your investment company to buy and sell regularly (trading).

Again, I’m not sure about this and you’ll be better off calling HMRC (0300 200 3500) to double-check your company is a passive or active NFFE. And as always, seek professional advice.

How to complete the W8-BEN-E Form for a UK investment company

This is another step in the process. Interactive Brokers will give you a W8-BEN-E form for you to fill out online. The W8-BEN-E form is the equivalent of the W8-BEN form but for corporations. This tells IRS that they should only withhold 15% tax off your dividends rather than 30% thanks to the USA-UK tax treaty. If you have an ISA and invest in US companies, you’ve probably completed one already.

I’ve ticked Part I (1,2,4, 5 – Passive NFFE, 6, 8b – that’s your corp tax UTR), Part III (yes, 14a, 14b – Company that meets the ownership and base erosion test – see IRS instructions), Part XXVI (ticked 40a, 40b).

I can always electronically submit a new WB-BEN-E form if my circumstances change. On the Classic AM interface, it’s under Manage Account -> Account Information -> Tax Information -> Tax Forms.

Sources:

Documents upload

The most time-consuming step of the onboarding application is the Documents Upload screen. Click on the More Information links to find out what each one means.

Documents upload screen
Upload documents for verification

It takes time to download, sign and upload lots of forms. But the good thing is that you can download all of them locally, and use Adobe PDF reader to Fill & Sign. You don’t really need to print it and send letters, unlike other brokers.

The documents you will usually need are:

  • Business Bank statement
  • Certificate of incorporation (you can find this on Companies House)
  • Personal ID (passport, driver’s license)
  • Proof of address (utility bill)
  • A few forms from “More Information” you need to download and sign

I only uploaded a few documents and left it incomplete for the night. The next day I received an e-mail from the New Accounts department asking me for a few more details including the Source of Funds. This was a good sign of customer service. I provided all remaining details and they opened my account the same day.

After signing up, you will be asked to electronically submit your EMIR and MiFir preferences. These are regulations for the derivatives markets. I do not trade derivatives and therefore these don’t apply to me. However, if you do, you may be subject to these regulations.

If you want to ask any questions during onboarding, a useful e-mail is [email protected].

Customer Service

The customer service has been pretty good so far. My account got locked after a few unsuccessful attempts to log in. I called them up and despite the late hours, they resolved it within minutes. I had to wait for less than a minute in the queue before a lady with a nice American accent picked up the phone. She was quite helpful and reset my password very quickly.

The customer service via e-mail was also decent. I had only uploaded a few documents during my onboarding. The next day I received an e-mail confirming that my documents were OK and the remaining documents they need from me to continue processing my application.

They have a live chat, a UK phone number, e-mail and a FAQ page.

Placing Orders on the Interactive Brokers platform

Personally, I like simple investing interfaces because I am a boring buy-and-hold passive investor. If I were a trader, the Interactive Brokers interface would be very appealing to me.

There are different ways to place an order, but I went for the QuickTrade online solution. As the name suggests, you can buy and sell any security at Market or Limit price and get on with life. Here’s how the interface looks like:

Quicktrade interactive brokers
Quicktrade Interactive Brokers interface. You’ll need the ETF symbol to trade

If you want more advanced features, then you can download the Trader Workstation which is a desktop application.

Trader Workstation Interactive Brokers

The Mutual fund – ETF replicator is another interesting tool this interface provides. Say you have an expensive mutual fund that you want to know what the alternatives are. This tool will show you what the closest options are in ETF flavour and at a lower cost.

Summary: Interactive Brokers Company Account

Interactive Brokers are a great platform for UK Limited companies wanting to invest their funds. It provides a wide selection of ETFs and other securities such as Options and Futures.

The ability to trade on margin should be carefully considered. It can go both ways…

The onboarding process is not the easiest, but it reflects the level of checks they need to perform to make sure they only have legit customers. On the plus side, you can do all of it online.

Interactive brokers are a public company which comes with both heavy regulation and transparency (both good for us).

I did my best to cover the Interactive Brokers platform for UK companies wanting to invest. But what applies to me may not apply to you. Also, the information in this article may be inaccurate by the time you read this. I did not consider your tax or financial situation.

This article should not be considered tax or financial advice. Always seek professional advice. I am not liable for any damage or losses. Foxy Monkey does not accept any liability for any loss or damage which is incurred from you acting or not acting as a result of reading this publication. You acknowledge that you use the information we provide at your own risk.

Interactive Brokers have not paid me to write this guide. I am not affiliated with them in any way.

Share this article:

Share on facebook
Share on twitter
Share on pinterest
Share on whatsapp

Liked this article?

Every 2 weeks, I send a handwritten email with honest, valuable content.
If you want to receive it please subscribe below! No spam, ever.

You may also like...

14 thoughts on “Interactive Brokers: Limited Company Investment Account”

  1. I’m using Hargreaves & Lansdown since ii starting charging £30 per month! They have been fine so far. When I signed up, they insisted that I need an LEI even if I only want to trade funds, but on the plus side they accepted a digital bank statement.

    This seems a better deal though. If H&L give me any reason to switch then I will be checking out Interactive Brokers. Thanks for the heads-up!

    Reply
    • Yup some platforms (like ii) insist on obtaining an LEI for regulation purposes. I had to get one before, anyway. Personally, I haven’t used HL but others seem to be happy with it!

      Reply
  2. H&L have a £1.50 Regular Investment charge. If you used that for investing say once a month and one normal priced trade to sell, it works out just £28.50/yr

    I think your mixing you $ and £ with IB. You quote £6 trading fee but $10 inactivity fee, but then take one from the other as if same currency

    Inactivity fee is not charged if balance greater than $100k, equivalent to about £70k

    Two of the best things about IB is low FX fee $2 (£1.50 ish) and low US share commission fee (about 30p on tiered structure). Combining those makes a very low cost platform and opens up US share trading

    Reply
    • Thanks, Cookie for the HL info. This looks very low. Am I right in thinking HL don’t offer US-domiciled ETFs/funds?

      On Interactive Brokers, I am not 100% sure how the inactivity fee is charged for accounts that trade in GBP (or another non-USD equivalent). Probably the $10 still holds for balances < $100k. So if we assume £6 is $8, then the monthly offering is even better than what I report. They probably only charge $2 per month in this case. I will correct it when I'm confident this is how non-USD accounts work. Indeed, the FX fee is really great!

      Reply
      • H&L don’t offer US-domiciled ETFs, but neither do most brokers open to European citizens. IB doesn’t allow you to invest in US-domiciled ETFs either, unless you have been able too? Most ETFs that are available to Europeans and invest in US stocks are domiciled in Ireland or Luxembourg

        The US-domiciled ETFs, as their main market is US, don’t bother with KIIDs/KIDs and so are not available to Europeans. Shame as the fees are much less and more diversity

        Reply
        • In IB you can actually trade US-domiciled funds. It’s just a bit of a hassle because you’ll have to manually convert your GBP to USD first. For dividend-paying funds, if you factor in the 15% dividend tax, it makes US funds a more expensive proposition overall, despite the European funds having higher OCFs.

          Reply
          • Can you name or give the ticker of the US-domiciled funds you been able to purchase? Other sites have reported this was not possible, so be interesting to look at how this is done.

            Withholding tax is only on dividends and dividends are only a small percentage of the return, so would be interesting to see an worked example comparison

            The low $0.35 buying cost Vs £6 would need factoring in and $2 FX

          • Hi Cookie, I haven’t actually bought a US fund yet because if you factor in the dividend tax then it works out more expensive than the European equivalents. For example, the vanguard global small-cap fund (domiciled in Ireland) has a 0.29% OCF. A similar one would be a combination of VB (US only) and VSS (global ex-us).

            Ignoring FX fees and the spread:

            VSS costs 0.12% and yields 3.25%. 15% on 3.25 is 0.4875%. Total cost after taxes considered = 0.60%
            VB costs only 0.05% and yields 1.39%. If you factor in the 15% tax on its 1.39% yield, that’s 0.2085%. Total cost = 0.2585%.

            I guess the lower the yield the better if you want to purchase US funds. I will try to buy a few units of a US fund and report back here.

            By the way, the £6 buying cost only applies to the fixed pricing. You can go with tiered pricing and pay as little as £1 for each trade.

  3. Hi Micheal,

    It’s a great blog. I have opened the account with ii last month and they changed monthly fee as

    My Plan : 9.99
    Non Standard Account Fee : 29.99 for company accounts

    Total : 39.98/month.

    It is very costly hence just closed the account.

    Also opened IB account and but in the order screen when enter the Stock Symbol and click Go it is not showing any stocks.

    I will contact customer service to find out whats the problem with my account.

    Its Margin account and requested Options Trading as well.

    Reply
  4. Yes, thanks for example, for dividends witholding tax is consideration

    I have found growth stocks beats dividend factoring in all returns. Haven’t looked at Corporation Tax saving

    Tiered commission LSE is % based, so less than £6 on less than £12k trades

    Reply
  5. FWIW another alternative is Selftrade. I’ve been using them for my company trading account since 2006, and can recommend them. I used them mainly for trading company shares, preference shares, bonds and some ETFs.

    Reply

Leave a comment

Hi! I’m Michael and I love writing about different ways to earn, save and invest our money. Coffee addict :)

Liked this article?

Every 2 weeks, I send a handwritten email with honest, valuable content.
If you want to receive it please subscribe below! No spam, ever.

Recent Posts