Whether the business was a trading company for entrepreneurs’ relief

The taxpayer owned ADL a property investment and development business and AML which carried out industrial and marine engineering activities. The shares in AML were transferred to a new holding company Allamhouse Ltd. In July 2011 the taxpayer sold all of the shares in ADL to AML. He claimed entrepreneurs’ relief on the sale of the shares. HMRC rejected the claim on the basis that the company was not a trading company (TCGA 1992 s 169I(6)(a)) because it carried out non-trading activities to a substantial extent. It said ‘substantial’ amounted to more than 20% of the business’s activities. The taxpayer said the 20% threshold was an ‘unnecessary and unjustified cliff edge’; the non-trading activities should be at least 50%.

The First-tier Tribunal agreed ADL carried on some trading activity but the proportion of its income which was non-trading rental income and the proportion...