In Tamzin Eyre & Ors v HMRC [2025] TC09530, the First Tier Tribunal (FTT) found that a company intending to develop a property was not a ‘trading company’ for Entrepreneurs’ Relief (now Business Asset Disposal Relief) purposes. Its activities included, to a substantial extent, activities other than trading activities.
Phoenix Spencer Sandbanks Limited (PSSL) was incorporated on 12 December 2011 to provide a loan to an unrelated third party, which then used the loaned funds to acquire a property for development (the property).
- PSSL's directors included TE, ZM, and CP, who held 200 Ordinary C shares, 200 Ordinary C shares, and 100 Ordinary A shares, respectively.
- By June 2016, it became apparent that the third party would be unable to discharge the loan and accrued interest. The third party transferred the property to PSSL in satisfaction of the debt.
- The property was let out for a mixture of commercial and residential use, and was recorded in PSSL’s accounts from 30 June 2017 and 2018, as an investment property.
- PSSL intended to make a profit by maximising the development potential of the property. To that end, PSSL:
- Purchased an option to acquire potential development land adjacent to the property.
- Granted an option over part of the property to an unrelated property development company.
- Made several planning applications, including jointly with other parties.
- On 22 June 2018, TE, ZM and CP agreed to sell their shares in PSSL to an ‘affiliated’ company, Battered Sole Limited (BSL).
- After the sale, BSL continued to seek planning permission for the redevelopment of the property.
- TE, ZM and CP resigned as directors of PSSL on 30 June 2018.
- TE, ZM and CP claimed Entrepreneurs’ Relief (ER) (now known as Business Asset Disposal Relief (BADR)) on their respective share disposals.
- HMRC raised an assessment and issued Closure notices totalling £99,473 because ER was not available.
- HMRC’s view was that PSSL was not a Trading company for the 'relevant period' of one year (now two years) before the share disposal.
- TE, ZM and CP Appealed to the First Tier Tribunal (FTT).
For ER purposes, a trading company is a company carrying on trading activities whose activities do not include, to a substantial extent, activities other than trading activities.
Trading activities mean activities carried on by the company:
- In the course of, or for the purposes of, a trade being carried on by it.
- For the purposes of a trade that it is preparing to carry on.
- With a view to it starting to carry on a trade.
The FTT found that:
- PSSL was not carrying on a trade during the relevant period.
- There was no evidence of other properties being bought or sold.
- The only property acquired by PSSL was acquired in discharge of a loan. The loan was held by PSSL as an investment and the property was acquired as an investment. It was recorded in the accounts as such.
- The only income received by PSSL was rental income derived from the property.
- The activities of PSSL over the relevant period did include activities for the purposes of a trade that it was preparing to carry on, or with a view to it starting to carry on a trade.
- PSSL had determined that rental income would not produce a sufficient return; it needed to facilitate the redevelopment of the property.
- Active steps to progress the redevelopment of the property were taken, including the engagement of architects and planning consultants.
- Just because PSSL was not successful in obtaining planning permission did not mean its activities were not for the purposes of a trade that it was preparing to carry on or with a view to it starting.
- It did not matter that PSSL was not the applicant for some of the planning applications, nor that PSSL’s expenditure was relatively insubstantial and comfortably exceeded by the rental income.
- When standing back, asking, “What was this company actually doing?” and applying the qualitative and quantitative approach from Assem Allam v HMRC, PSSL’s activities in the relevant period included, to a substantial extent, activities other than trading activities. It was not, therefore, a 'trading company'.
- Although PSSL’s rental income was temporary due to the intended redevelopment, it was significant in absolute terms (£94,616 over two accounting periods) and was PSSL’s only source of income.
- From the time it was incorporated, PSSL had always been an investment company.
- The lack of expenditure on trading activities compared to the quantum of non–trading income was noteworthy.
- Around 22% of the redeveloped property was not earmarked for sale but was intended to be retained to generate rental income. As such, PSSL intended to continue holding a significant part of the site as a long–term investment.
- PSSL had debtors of £281,449. While they produced no income, the sums owed were significant and not held for trading purposes. Holding them was a non-trading activity.
The appeal was dismissed.
Useful guides on this topic
Business Asset Disposal Relief (Entrepreneurs' Relief): Disposal of shares or securities in a company
When can you claim Business Asset Disposal Relief (BADR) on a share sale? What is the rate of Business Asset Disposal Relief (Entrepreneurs' Relief)? How do you claim BADR? What case law is there on BADR?
Is it a trade, a business, or an investment activity?
Starting in business or running one? Is your new or existing business a trade, a business or an investment activity? The distinction is very important for tax purposes. This guide runs through key issues for tax purposes.
Badges of Trade: Are you trading or not?
Are you trading, running a business or just buying and selling investments? Is your 'side-hustle' taxable? The 'Badges of Trade' are a set of indicators built over time by the courts to decide when an activity is a trading or investment activity.
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