Total Eclipse of relief

The taxpayer partnership obtained a 20-year licence from Disney in April 2007 to distribute two movies.

The business was financed by 289 partners who contributed £840m in total. They borrowed £790m and claimed relief on the interest under TA 1988 s 362(1)(b) on the basis the partnership was carrying out a trade and the loan constituted capital used wholly for the purposes of such.

HMRC refused the claim on the basis the taxpayer was not carrying on a trade.

The First-tier Tribunal and Upper Tribunal dismissed the taxpayer’s appeals ruling the partnership had carried on a “non-trade business” of film exploitation (ITTOIA 2005 s 609).

The matter escalated to the Court of Appeal which said the “proper characterisation” of the taxpayer’s business depended upon the totality of its activity and enterprise. The payment of the licence fee had the character of an investment.

The...