In Andrew & Charlotte Moffat v HMRC [2025] TC09546, the First Tier Tribunal (FTT) found that a disposal of shares in the holding company of a group did not qualify for Entrepreneurs' Relief (ER) due to the level of the group's non-trading activities. The taxpayers had taken reasonable care, however, meaning that HMRC's penalties were quashed.
On 1 February 2016, Andrew and Charlotte Moffat (the taxpayers) used two holding companies in a vertical group to acquire another company for £4.3 million.
- The acquired company provided moorings on the River Thames together with services and maintenance. It also provided some additional optional services, including boat repairs and renovation.
- On 30 September 2016, the taxpayers sold shares in the group's ultimate parent company to a related party for £17.8 million.
- Following the submission of one of the group company’s Corporation Tax returns, HMRC contacted the taxpayers for further information about the value of the acquired subsidiary company, as at 30 September 2016.
- The taxpayers filed their 2016-17 tax returns on 16 October 2018. These included claims for Entrepreneurs' Relief (ER) (now known as Business Asset Disposal Relief) totalling £1,775,895 on their respective share disposals in the holding company.
- On 10 January 2019, HMRC opened an enquiry into the two tax returns. Closure notices were issued on 11 March 2021, denying the ER claims on the basis that the holding company was not the holding company of a trading group.
- HMRC accepted that the taxpayers were in discussions to purchase the shares of the acquired company prior to 1 October 2015 and did not deny the ER claim because of the disposal taking place less than a year after the acquisition date.
- HMRC issued Penalty assessments totalling £372,291 based on the taxpayers having not taken Reasonable care in claiming ER on their tax returns.
- The closure notices and penalty assessments were upheld by HMRC in Statutory review.
- The taxpayers Appealed to the First Tier Tribunal (FTT).
The FTT found that:
- The acquired company was not a trading company for ER purposes.
- S.207(4) CTA 2009 provides that a right to use a houseboat at one location is property income.
- The onus was therefore on the taxpayers to show that, rather than exploiting a property right (non-trading), the company was engaged in a single trading activity of providing moorings together with maintenance and other services to the boat owners. This was a question of 'fact and degree'.
- The company being in occupation of the marina was relevant, but it was not considered to be a determining factor in distinguishing property and trading income.
- Many of the services provided by the company were conditions of its River Works Licence (RWL). Complying with the licence conditions would not be considered trading activity.
- The remaining services provided by the company were similar to those routinely provided by a property business and did not indicate trading activity.
- The accounts showed that the non-trading activities of the company were 'substantial', with over 68% of income being non-trading.
- The taxpayers were not careless when completing their tax returns.
- The taxpayers had sought the advice and views of two reputable firms of accountants before making the claim. It was not unreasonable that the advice was provided orally and not in writing.
- The FTT confirmed, contrary to HMRC’s view in this case, that there is no obligation on taxpayers to contact HMRC to ascertain the correct treatment of a transaction or a potential claim for relief. The FTT noted its expectation that HMRC would turn down a request for advice and advise a taxpayer to seek independent professional advice.
- The taxpayers had done what a reasonable taxpayer would have done.
The appeal in relation to the ER claim was dismissed, but the appeal against penalties was allowed.
Useful guides on this topic
Business Asset Disposal Relief (Entrepreneurs' Relief): Disposal of shares or securities in a company
When can you claim Business Asset Disposal Relief (BADR) on a share sale? What is the rate of Business Asset Disposal Relief (Entrepreneurs' Relief)? How do you claim BADR? What case law is there on BADR?
Penalties: Errors in Returns and Documents (subscriber version)
What penalties apply if you make an error or mistake? Is there a penalty if you fail to tell HMRC about an under-assessment? How are penalties calculated? How do you check penalties? What can you do if you receive a penalty?
Statutory Review (by HMRC)
What is a Statutory Review? When does HMRC offer a Statutory Review? Is it automatic? What happens in a Statutory Review? Can you challenge a Statutory Review's findings? Can you influence a Statutory Review? When does HMRC offer a Statutory Review?
Too rich to TiS
In Assem Allam v HMRC [2021] UKUT 0291, the Upper Tribunal (UT) found, in part, that Entrepreneurs’ Relief (ER) did not apply to the disposal and Business Investment Relief had been correctly withdrawn.
External link