UK and International Tax news

FTT Hears Case on Whether a Company as Trading For Entrepreneur’s Relief Purposes

Monday 14th September 2026

The FTT has recently allowed taxpayers’ appeals in a case involving claims to entrepreneurs’ relief and whether the company was trading.

In Pontin and Others v HMRC [2026] UKFTT 01166, the appellants sold shares Highland Holdings Limited (HHL), whose only asset was a holding of the entire issued share capital of Associated Properties UK Ltd (APUK). All the appellants were directors of HHL from 14 January 2008 until 2 June 2016 and each held at least 5% of the ordinary share capital and voting rights in HHL.

Each of the appellants claimed entrepreneurs’ relief in respect of the gain arising on the disposal of their HHL Shares. It was common ground that, if HHL had been the holding company of a trading group throughout the relevant period of one year up to the date of disposal of their HHL Shares, their claims would be successful. It was also common ground that HHL would have been the holding company of a trading group throughout the relevant period if APUK had been a trading company throughout that period.

S.165A TCGA92 includes the relevant definition of “trading company”, which means 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 the company 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 is preparing to carry on, with a view to its acquiring or starting to carry on a trade, or with a view to its acquiring a significant interest in the share capital of another company that is a trading company or the holding company of a trading group. Activities do not qualify as trading activities unless the acquisition is made, or the company starts to carry on the trade, as soon as is reasonably practicable in the circumstances.

HMRC initially argued that APUK was not carrying on “trading activities” during the relevant period and, even if it was, that its activities included to a substantial extent activities other than trading activities.

During the hearing HMRC abandoned the first of these arguments and accepted that, throughout the relevant period, APUK was carrying on activities with a view to starting to carry on a trade and that it started to carry on the trade, as soon as was reasonably practicable in the circumstances. However, HMRC argued that APUK did not meet the definition of “trading company” as its activities during the relevant period included to a substantial extent activities other than trading activities.

APUK owned property in Henley on Thames comprising 83 acres of mixed industrial, offices, agricultural uses and housing, with 6.5 hectares developed including 11 privately owned houses and a bungalow which were let. A site of special scientific interest and a national monument were also located on the property and there was considerable archaeological interest in both the buildings and the grounds.

In 2011 the directors of APUK decided to change the company’s activity to one of actively developing the property for residential property. As a result, the property was reclassified in APUK’s accounts from being fixed asset investment property to trading stock.

On 12 October 2012 the appellants entered into an option agreement with Crest Nicholson Operations Limited (CNOL) over the HHL Shares. Following the issue of a Neighbourhood Plan in 2015, which set out the framework for a development in the local area, it was becoming apparent that the Neighbourhood Plan would allocate around 170 houses for development at the property owned by APUK. It was agreed between APUK and CNOL that planning permission should be sought, and in April 2016, and after significant work and efforts by the directors of APUK, it was formally confirmed that the property was included in the Neighbourhood Plan. CNOL exercised its option over the shares in HHL and the share sale was in June 2016.

As work on the residential development began, APUK continued to manage its property lettings with rental income continuing to be its only source of income during the year before share sale.

The FTT had to decide whether APUK met the second limb of the definition of “trading company”, that its “activities did not include to a substantial extent activities other than trading activities”.

The FTT distinguished the position APUK had reached with the property from that in in relation to the properties in the Allam case [ Allam v HMRC [2021] UKUT 291] where the FTT’s decision referred to the company continuing to let the properties and receiving a significant amount of rental income, having only earmarked the properties for development. In this case, APUK had done far more than that. It had decided, back in 2011, to move from holding the property as an investment to looking to use it to carry out a development and this had a significant impact on the rents it received and how it managed the property.

The FTT concluded that during the relevant period a very significant part of APUK’s physical activity was focused on development, not investment, activity.  That activity led to APUK carrying on a very successful development trade (as envisaged in the Option Agreement) which generated over £25m of profit in due course.

APUK’s only meaningful asset was held with the predominant intention of being redeveloped and sold off in the course of that trade. APUK had done far more than just decide that it wanted to carry on a development trade.  It had started to take action to bring a development about and it dealt with its own property in a way which was entirely consistent with that goal.

APUK derived some legacy, long-term investment income, but during the relevant period it took steps to bring that income stream to an end before the HHL shares were sold. It also derived some rental income from short-term leases which were a natural part of its development plans. They were granted on terms which would not hinder the development when it started.

In conclusion, the FTT held that none of these were non-trading activities, physical or financial, being of material or real importance in the context of the activities of APUK during the relevant period, and therefore HHL was the holding company of a trading group and the taxpayers’ appeals were allowed.

If you would like more information on the above decision, please contact Keith Rushen on 0044 (0) 207 486 2378.

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