Editor's note: This brief was summarised by The Property AI Newsroom from a report by Property118. Read the original article for full details.

Upper Tribunal Confirms Broad Definition of 'Business' in HMRC Appeal

The Upper Tribunal has dismissed HMRC’s appeal in the case of HMRC v GCH Corporation Ltd and others, confirming that an LLP does not need to be carrying on a trade to meet the “business with a view to profit” requirement in section 59A TCGA 1992. The decision upholds the First-tier Tribunal’s reasoning and clarifies the meaning of “business” for tax purposes.

The case involved taxpayers who transferred loan notes into an LLP. HMRC argued that the LLP was not carrying on a trade or business with a view to profit, and therefore section 59A did not apply, resulting in immediate chargeable gains. The LLP’s activities included acquiring, holding, and selling investments with the intention of making profits, purchasing shares, selling some at a profit, and receiving dividend income. The LLP was also established as part of a tax planning arrangement.

The Upper Tribunal agreed with the First-tier Tribunal that, while the LLP was not carrying on a trade, it was carrying on a business, and that business was conducted with a view to profit. As a result, section 59A applied and the transfers into the LLP did not trigger the capital gains tax consequences HMRC had argued for.

The Tribunal’s judgment confirmed that “business” is a broader concept than “trade” and that investment activity can constitute a business. It also stated that a business does not cease to be a business simply because one purpose is tax efficiency, and the key question is whether there is a genuine commercial activity undertaken with a view to making profits.

HMRC also argued that the LLP’s purpose was essentially tax mitigation, but the Upper Tribunal rejected this, holding that the existence of a tax planning motive did not prevent the LLP from carrying on a genuine investment business intended to generate profits.

On a procedural point, the taxpayers cross-appealed on HMRC’s discovery assessments. The Upper Tribunal agreed with the First-tier Tribunal that HMRC had made a valid “discovery” under section 29 TMA 1970. Therefore, HMRC lost on the substantive capital gains issue but succeeded on the procedural discovery point. Both HMRC’s appeal and the taxpayers’ cross-appeal were dismissed.

The Tribunal’s discussion of what constitutes a business is noted as potentially useful in the context of landlord incorporations, reinforcing that investment businesses can qualify as businesses and that profit-seeking investment activity can amount to a business, even if relatively passive. However, it is noted that section 162 TCGA has its own body of case law regarding property letting businesses.