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A holiday business comprising an hotel and six serviced accommodation apartments was operated in partnership by a husband and wife. In December 1995, they sold shares in a property company at a gain of £123,565 to each of them.
The partners formed another company that purchased the six apartments from them, but services such as reservations, laundry and cleaning, window cleaning, reception and management of the restaurant and bar were provided by the partnership, which invoiced the company. When the hotel was closed out of season, not all of these services were available to the occupants of the apartments, which were open all year round.
The husband and wife claimed reinvestment relief under TCGA 1992, s 164A in respect of the property company shares.
HMRC refused the claim, arguing that the new company was not a qualifying trade.
The Special Commissioner held that the new company derived its income from the commercial letting of furnished accommodation, which whilst a business was not a trade. The services provided by the company were typical of a holiday letting arrangement, whilst other services were provided by the partnership. Although a trade could consist of the procurement of other services, in this case those services were relatively insignificant compared to the main holiday letting activity. This was not a qualifying trade and the provisions of TCGA 1992, s 164G(2)(a) could not be met.
The taxpayer's appeal was dismissed.
Maclean and another v CRC, SpC 594, 19 February 2007
