In HMRC v Ardeshir Naghshineh [2020] UKUT0030, the Upper Tribunal (UT) refused sideways relief for farming losses. A competent farmer would have had a reasonable expectation of profits several years before the loss-making periods.

Sideways loss relief is not available unless the trade is commercial, that is unless it is:

Where a farming business makes losses for five years in a row, Loss Relief is not available in the sixth or following years. An exception is when the ‘reasonable expectation of profits’ test at s68 ITA 2007 is met. 

Mr Naghshineh purchased a farm as a conventional working agricultural farm in 1995.

The FTT allowed the losses:

HMRC appealed to the Upper Tribunal on the grounds that the FTT erred in law, taking into account a period during which Mr Naghshineh was only planning to carry on activities.

The UT said this was the wrong question and considered two further points not raised by the parties.

The UT set aside the FTT decision, refusing Mr Naghshineh’s appeal. It set out an approach to applying the reasonable expectation of profits test at s68:

The UT concluded that the FTT decision contained material errors in law. The expert opinion was that it would have taken Mr Naghshineh 4 years to fully convert the farm to organic farming and then another ten years for the organic farm to become profitable. This meant that there would have been, at the beginning of the loss period in 1995, a reasonable expectation of profits long before the periods for which loss relief was being claimed were reached. As a result the test at s68 was not met and the losses were not allowable.

As an aside and since it did not affect the decision, the UT said that the correct date for determining the prior period of losses was 6 April 1994, not 31 March 1995.

Links to our subscriber guides:

Losses (sideways): restriction for uncommercial trades

Losses, trade losses and sideways relief


Farmers: what expenses can I claim?

External link:

HMRC v Ardeshir Naghshineh [2020] UKUT0030