In Ian Branagan v HMRC TC04188 the First Tier Tax tribunal (FTT) denied income tax share loss relief in respect of a negligible value claim: the company was not a qualifying trading company at the relevant time. In dismissing the taxpayer's appeal the FTT had to determine what was meant by "relevant time".

  • The taxpayer claimed relief for some £50k in shares subscribed between 2002 and 2004 in the company "IR".  
  • IR was set up to develop a financial product and become a mortgage lender however its trade failed when external funding was withdrawn in July 2005. It then made some efforts to return value to its shareholders by licencing the mortgage product but there was little other than a few spreadsheets to licence and this came to nothing. The company was sold for £2,000.
  • The taxpayer made a negligible value claim on his 2005/06 tax return and claimed income tax loss relief on his capital loss under s574 ICTA 1988 (now Chapter 6 of Part 4, Income Tax Act 2007), see Loss relief (income tax) disposal of shares. He considered that the company was a software company.

What was the company's activity at the relevant time?

The FTT considered the history of the company largely from documentary evidence and was assisted by the wording of the director's report and also an R & D claim made by its accountants to HMRC. It found that IR not an eligible trading company at any time up to around the end of July 2005 because of its trading intentions were to develop a new mortgage products and become a mortgage lender (an excluded activity). It was not a software company. From July 2005 to 5 April 2006, there was no point at which it could properly be said that IR was a company which existed wholly for the purpose of carrying on one or more qualifying trades or which so existed apart from purposes capable of having no significant effect (other than in relation to incidental matters) on the extent of its activities. Accordingly, IR was not at any time an eligble company.


In coming to his decision, Judge Kevin Pool said "It is hard to resist commenting that the legislation which is the subject of this appeal displays the sort of unnecessary drafting complexity that gives tax law a bad name. Film buffs will be reminded of Chico Marx’s hot tip in the Marx Brothers’ film “A Day at the Races”. 

Whilst the offending legislation (s574 and s293 ICTA 1988) has now been re-written, the outcome of this case like so many cases before it depended on the taxpayer being able to show that the company's business was a trade that was eligible for the relief claimed. It is difficult to prove something when it conflicts with amongst other things historical facts such as the wording stating the company's activities in the directors' report.