Italian idyll

Deduction of trading losses

In 2003 the taxpayer bought a dilapidated former monastery in Tuscany. In 2006 when in accordance with Italian law he acquired legal title to the property he began restoration work with the aim of running the villa as a holiday let. In 2008 his son moved into the villa to oversee the final stages of its restoration and they began to market the property. In 2010 the villa received its first guests.

However bookings suffered as a result of the 2008 recession and the taxpayer made losses in 2010-11 and 2011-12. He claimed trade loss relief against his general income in his self assessment returns for those years (ITA 2007 s 64). HMRC refused the claims.

The taxpayer appealed. He said it was clear on the evidence that the trade carried on at the villa during those years was on a commercial...