Taxpayers’ intentions defeated HMRC’s ‘adventure in the nature of trade’ and PPR claims
A tax tribunal decision provides helpful guidance on what may amount to a trade for the purposes of income tax. HMRC sought to argue that the purchase of a large property, and its rebuild and sale at a huge profit, amounted to ‘trading’.
The taxpayers’ intentions were demonstrably clear - and HMRC’s arguments, including that the property was not their principal private residence, did not stack up.
No trading
In R Eyre and another v HMRC [2025] UKFTT 461, Mr and Mrs Eyre, who already owned a house in Holland Park, purchased another property in Burnsall Street, Chelsea for £9.75m. They intended to refurbish it, but demolished the property and built a new house. They sold the newbuild for more than £27m.
In their self-assessment tax returns, they put Burnsall Street as their principal private residence (PPR) for the purposes of capital gains tax (CGT). However, HMRC considered the Eyres’ purchase, redevelopment and sale constituted an ‘adventure in the nature of a trade’ and was subject to income tax. In the alternative, HMRC decided Burnsall Street was not the Eyres’ PPR and CGT applied.
HMRC issued them with an income tax assessment: Mr Eyre - £1,761,446.18 and Mrs Eyre -£1,566,853.41.
The FTT disagreed with HMRC on both points, concluding that the property did qualify for PPR relief. Furthermore, the transaction was not an 'adventure in the nature of trade'
Adventure in the nature of trade
Under s989 Income Tax Act 2007, ‘trade’ includes ‘any venture in the nature of trade’. HMRC accepted that the Eyres had not entered into any other property trading transactions (ie it was an isolated sale/renovation/sale project). However, it argued that the purchase and sale of Burnsall Street was a “venture in the nature of trade” because their intention was to profit from the property.
The FTT dispensed with HMRC’s conclusion, finding on clear contemporaneous evidence that the Eyres intended to refurbish Burnsall Street, move into it as their home, and sell their other property. That was still their intention when contracts were exchanged.
There was no evidence they planned to profit from buying, refurbishing and selling it. One of the factors was the evidence that the Eyres had personalised Burnsall Street and spent a lot of time making it suit their needs. It was not, therefore, a trading transaction.
PPR
PPR relief on CGT is available where a property is genuinely occupied as a main residence, even for a short time. The FTT concluded that the property was the couple’s ‘residence’ within the meaning of s 223(1) TCGA.
Again, the availability of contemporaneous evidence was important in the FTT’s decision. The Eyre’s occupation of Burnsall Street for CGT purposes was from 9 July 2013 to around 2 February 2015. They had demonstrated the degree of permanence and continuity sufficient to turn mere occupation into residence.
Although they had more than one residence during that time, they nominated Burnsall Street for CGT purposes from 13 July 2013. Therefore, this was their main residence from that date until they moved out. They were entitled to PPR.
What does this mean?
The decision is particularly useful in clarifying what amounts to an ‘adventure in the course of trade’ and what is required to satisfy the definition.
The taxpayer’s intentions at the relevant time are a key factor, and the availability of contemporaneous and other documentary evidence to support that intention is invaluable. Always take specialist advice from experienced tax lawyers on complex high value transactions in case you need to respond to an HMRC assessment.
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