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Problems can arise when an activity straddles the boundary between a hobby and a business.
KEY POINTS
- Sideways loss relief claimed from activities that might
be classed as hobbies are likely to come under scrutiny from HMRC. - Three recent First-tier Tribunal cases illustrate refusal of loss relief.
- An explanation of the Lennartz mechanism.
- Forward planning and ability to justify loss claims is essential.
- Activities will need to be considered in the round to determine whether a business is being carried on.
Income tax loss claims arising from anything that amounts to a ‘hobby’ – for example yachts and horses – have recently come under close scrutiny by HMRC and this is reflected in a number of tribunal cases. The equine activities in Three Cases such as McMorris (TC04204) Thorne (TC03851) and Murray (TC03474) – where large tax losses were claimed sideways (under ITA 2007 s 64)...
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