This case (Eyre and others v Revenue and Customs Commissioners [2025] UKFTT 566 (TC)) concerned an appeal against HMRC's decision to refuse three individual taxpayers claims for Entrepreneurs' Relief (ER) (now Business Asset Disposal Relief). The aggregate amounts under appeal were circa £100,000.
The taxpayers' claims arose from their sale of shares in a company called Phoenix Spender Sandbanks Limited (PSSL). PSSL was originally established in order to provide a loan to a third party to enable it to acquire a property (the Property). When it became apparent that the third party would not be able to repay PSSL, the Property was transferred to PSSL in discharge of the loan. PSSL recorded the Property in its accounts as 'investment property' and it was let out for a mixture of commercial and residential use. PSSL's intention at the time of the acquiring the Property was to make a profit by maximising its development potential.
PSSL purchased an option to acquire land adjacent to the Property and received planning permission to develop some semi-detached houses on the site. The option however lapsed. PSSL also made several applications for planning permission with two unrelated companies (that were affiliates of each other) to develop the Property and land owned by one of the unrelated companies but on each occasion, permission was refused.
For the accounting periods 2017 and 2018, the directors' report for PSSL stated that its principal activity was 'property development' despite the fact that its only income was rental income (from which it made a profit in both periods). In the 2018 accounting period, PSSL incurred fees of £1,793.10 in respect of planning and architectural services.
In June 2018, the taxpayers sold their shares in PSSL.
The issue at stake was whether the taxpayers had, for ER purposes, made a 'material disposal of business assets' in respect of the sale of their shares. Amongst other things, this required PSSL to be a trading company for one year prior to the taxpayers' disposals of the shares. The ER legislation defines a 'trading company' as a company carrying on trading activities whose activities do not include to a substantial extent activities other than trading activities. 'Trading activities' means activities carried on by a company: (a) in the course of, or for the purposes of, a trade being carried on by it; (b) for the purposes of a trade that it is preparing to carry on; or (c) with a view to its … starting to carry on a trade. HMRC said that the activities of PSSL were not 'trading activities' because they did not fall within any of (a), (b) or (c) and that further, even if PSSL was considered to be carrying on trading activities, this did not make it a trading company because its activities included, to a substantial extent, non-trading activities.
As regards (a), the First-tier Tribunal agreed with HMRC that in the relevant period, PSSL's activities were not in the course of or for the purposes of a trade carried on by it.
As regards (b) and (c), the Tribunal disagreed with HMRC and concluded that over the relevant period, PSSL was taking active steps to progress the re-development of the Property by seeking planning permission, engaging architects and planning consultants to draw up plans for various re-developments. The fact that PSSL had not carried out any re-development and that its expenditure in seeking to achieve its re-development aims was relatively insubstantial and comfortably exceeded by the rental income it received, did not alter the Tribunal's conclusion that PSSL's activities during this period were for the purposes of a trade that it was preparing to carry on or with a view to it starting to carry on.
In looking at whether PSSL's activities were to a substantial extent non-trading, the Tribunal noted that this required them to stand back and look at the activities of the company as a whole and ask- 'what was the company actually doing?' In conducting this analysis the Tribunal identified the following facts – 100% of PSSL's income during the relevant period came from its rental income, it was an investment company (despite the fact that it was preparing to carry on a trade), its expenditure on seeking to implement its redevelopment plans were limited, there was no evidence that the re-developed property would be sold (the company might simply hold on to it as a long term investment after re-development) and the company had significant non-trading debtors. These facts led the Tribunal to conclude that the non-trading activities carried on by PSSL were a substantial part of its overall activities and therefore, it was not, in the one year period prior to the taxpayers' disposals of their shares, a trading company. Consequently, the taxpayers' appeals against HMRCs refusal to accept their claims for ER failed.
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