UK and International Tax news

FTT Denies Entrepreneurs Relief on Disposal of Property Company Shares

Tuesday 10th June 2025

The FTT has held that the taxpayers were not entitled to entrepreneurs’ relief on disposals of shares in a property company because it had substantial non trading activities.

In T Eyre and others v HMRC [2025 UKFTT 566 TC], shares in Phoenix Spencer Sandbanks Limited (PSSL), were sold and the taxpayers considered that the disposals were “qualifying business disposals” for the purposes of s.169H TCGA92 and Entrepreneurs’ Relief (now Business Asset Disposal Relief).

HMRC maintained that the disposals did not meet the conditions necessary to be “qualifying business disposals”, in particular that PSSL was not trading company, being a company carrying on trading activities whose activities do not include to a substantial extent activities other than trading activities [s.165A TCGA92].

Prior to the formation of PSSL, the taxpayers had together invested in a number of residential property development joint venture companies, providing the residential property development expertise and working capital to the relevant companies. In each case, the relevant company obtained planning permission for the development in question and then either carried out the development itself or sold the land to a third party developer with the benefit of the planning permission.

PSSL however was not formed with the intention of owning land or engaging in residential property development itself, but provided finance to an unrelated third party for property development purposes. PSSL subsequently acquired a financed property by way of the discharge of that loan.  It was common ground that the activity of making the loan and receiving interest on it was an investment activity on the part of PSSL.

The PSSL property was recorded in its 2017 and 2018 accounts as an investment property. It continued to be let out for a mixture of commercial and residential use, but it was PSSL’s intention to redevelop the property and make a profit.

PSSL subsequently granted an option to an unrelated property development company with whom PSSL assisted with several planning applications for the redevelopment of the property along with certain land adjacent to the property, but these were refused or withdrawn.

HMRC sought not to challenge the company’s status as a trading company by arguing that, as a matter of principle, the activity of making a profit from the redevelopment of a single property cannot amount to a trade.

Instead, HMRC argued the activities of PSSL during the relevant period were not trading activities because they were not activities carried on in the course of, or for the purposes of, a trade being carried on by it, or for the purposes of a trade that it was preparing to carry on; or with a view to its starting to carry on a trade.

Even if PSSL did carry on trading activities falling within one or more of the categories previously described, its activities during that period also included, to a substantial extent, activities which were not trading.

The FTT concluded that “when one stands back and looks at the activities of the company as a whole and asks what was this company actually doing, as the decision in Allam requires us to do, we do not see how it is possible to say that the non–trading activities of the company over the relevant period were not meaningful.  In adopting the qualitative and quantitative approach set out in Allam, the non trading activities were a substantial part of the overall activities of the company”.

 

If you would like more detail on the above decision, please contact Keith Rushen on 0207 486 2378.

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