Nature of taxpayers’ company and whether it carried out non-trading activities

The taxpayers owned all the shares in Gatebright Ltd which traded on the London Metal Exchange. 

The company was successful until the 2008 financial crash when to safeguard its reserves it bought two six-year investment bonds which paid interest of £35 000 a year from 2009 to 2015.

Gatebright issued its final invoice in March 2009. The taxpayers tried to maintain the company’s trade but without success. They closed the company by means of a members’ voluntary liquidation in November 2015.

The taxpayers claimed entrepreneurs’ relief on the resultant capital gain. HMRC refused the claim on the ground the company had ceased trading before November 2012 – outside the three-year period in condition B in TCGA 1992 s 169I. Alternatively the investment of reserves in the bonds meant that the company’s activities had become to a substantial extent investment activities.

The First-tier Tribunal said the ‘critical...