Nicholas Henderson v The Commissioners for HMRC
[2023] UKFTT 281 (TC)
Mark Stolkin & Ors v The Commissioners for HMRC
26 February 2024
[2024] UKFTT 160 (TC)
First-tier Tribunal
Three people owned a company that bought land to make money. They tried to get planning permission to build houses to sell the land for more, but didn't actually build anything. A tax court decided their actions weren't 'trading', even though they worked hard, because they didn't do the actual building and originally intended to keep the land as an investment. So, they didn't get a tax break.
Key Facts
- •Stolkin Greenford Limited (SGL) acquired land with the initial intention of property investment.
- •Shareholders (Appellants) disposed of shares in SGL upon liquidation between March and April 2016.
- •Appellants claimed entrepreneurs' relief, which HMRC denied.
- •The dispute centers on whether SGL was a 'trading company' for at least one year before the share disposal, fulfilling Condition B of section 169I TCGA.
- •SGL's activities involved extensive planning applications for land redevelopment, primarily focusing on residential use, with the assistance of consultants and a related company, SCG.
- •SGL eventually sold the land to Greystar in a transaction that significantly exceeded their projected value from their planning strategy.
Legal Principles
Entrepreneurs' relief is available for gains from 'qualifying business disposals,' contingent on meeting conditions outlined in section 169I TCGA.
Taxation of Chargeable Gains Act 1992 (TCGA)
A company is a 'trading company' if its activities are predominantly trading and do not include substantial non-trading activities (section 165A TCGA).
Taxation of Chargeable Gains Act 1992 (TCGA), Schedule 7ZA
The definition of 'trade' includes any 'venture in the nature of trade' (section 989 Income Tax Act 2007).
Income Tax Act 2007
Badges of trade, such as motive, length of ownership, frequency of transactions, and supplementary work, are considered in determining whether an activity constitutes a trade, but are not definitive.
Various case law (e.g., Marson v Morton, Taylor v Good)
A change of intention is necessary for an asset to transition from investment to trading stock, but a change of intention alone is insufficient; actual trading activities must be carried out.
Simmons v IRC, Taylor v Good
Mere management activities, even if extensive, do not constitute trading.
Webb v Conelee Properties Ltd
The assessment of trading activity requires a 'realistic approach,' considering the whole picture of the taxpayer's actions.
Eclipse Film Partners No 35 LLP v HMRC
Outcomes
Appeals dismissed.
SGL's activities, although complex and involving significant effort in seeking planning permission, did not constitute trading within the meaning of the TCGA. The initial intention to acquire the land as an investment, the lack of substantial physical work on the site, and the reliance on third-party consultants to enhance the land's value for resale were key factors in the decision.