“(7) Condition B is that the conditions in paragraphs (a) and (b) of subsection (6) are met throughout the period of 1 year ending with the date on which the company— (a) ceases to be a trading company without continuing to be or becoming a member of a trading group, or (b) ceases to be a member of a trading group without continuing to be or becoming a trading company, and that date is within the period of 3 years ending with the date of the disposal.”
“(a) the company is the individual's personal company and is either a trading company or the holding company of a trading group, and (b) the individual is an officer or employee of the company or (if the company is a member of a trading group) of one or more companies which are members of the trading group.”
“(4) For the purposes of subsection (3) above “trading activities” means activities carried on by the company— (a) in the course of, or for the purposes of, a trade being carried on by it, (b) for the purposes of a trade that it is preparing to carry on, (c) with a view to its acquiring or starting to carry on a trade, or (d) with a view to its acquiring a significant interest in the share capital of another company that— (i) is a trading company or the holding company of a trading group, and (ii) if the acquiring company is a member of a group of companies, is not a member of that group.”
“Trading requires an intention to trade: normally the question to be asked is whether this intention existed at the time of acquisition of the asset. Was it acquired with the intention of disposing of it at a profit, or was it acquired as an investment? Often it is necessary to ask further questions: a permanent investment may be sold to acquire another investment thought to be more satisfactory; that does not involve an operation of trade, whether the first investment is sold at a profit or at a loss. Intentions may be changed, What was first an investment may be put into trading stock – and, I suppose, vice versa. …. What I think is not possible is for an asset to be both trading stock and permanent investment at the same time, nor to possess an indeterminate status — neither trading stock nor permanent asset. It must be one or other, even though, and this seems to me legitimate and intelligible, the company, in whatever character it acquires the asset, may reserve an intention to change its character. To do so would, in fact, amount to little more than making explicit what is necessarily implicit in all commercial operations, namely that situations are open to review.”
“I find the position, though complicated, reasonably plain. Mr. Simmons wanted to build up an investment portfolio; he formed investment companies; allied himself with an investment trust; caused each (relevant) company to acquire one property, or at most two properties, to develop and let it, and was forced into a realisation of these completed investments. This was simply a realisation of capital.”
“All these cases, it seems to me, point strongly against the theory of law that a man who owns or buys without present intention to sell land is engaged in trade if he subsequently, not being himself a developer, merely takes steps to enhance the value of the property in the eyes of a developer who might wish to buy for development.”
“If of course you find a trade in the purchase and sale of land, it may not be difficult to find that properties originally owned (for example) by inheritance, or bought for investment only, have been brought into the stock-in-trade of that trade. To such circumstances I would relate the dicta relied upon in the other three cases referred to by Megarry J. But where, as here, there is no question at all of absorption into a trade of dealing in land of lands previously acquired with no thought of dealing, in my judgment there is no ground at all for holding that activities such as those in the present case, designed only to enhance the value of the land in the market, are to be taken as pointing to, still less as establishing, an adventure in the nature of trade. Were the commissioners, on a remission to them, to decide otherwise, it seems to me they would be wrong in law.”
“The real question is whether this money can be regarded as profits or gains derived by the Company from carrying on a trade or business. In my opinion it cannot. The Company are doing no more than an ordinary landowner does who is minded to sell from time to time, as purchasers offer, portions suitable for building of all estate which has devolved upon him from his ancestors. I am unable to attach any weight to the circumstance that large sales are made every year. This is not a case where land is from time to time purchased with a view to resale; the Company are only getting rid by sale as fast as they reasonably can of land which they acquired as part of a consideration for the surrender of their Charter.”
“I do not think that merely putting the article in question in a suitable condition for favourable sale would necessarily have [the effect of taking a transaction out of the class of an isolated purchase and sale], as, for example, having a picture cleaned, or a ship's boilers cleaned and the hull repainted. But I am disposed to think that it would introduce the element, of carrying on a trade if the purchaser were, by himself or his own employees or by a contractor, to carry through a manufacturing process which changed the character of the article. An illustration might be the purchasing of a quantity of pig iron and having it manufactured into steel, or of gold bearing ore and having the gold extracted by milling the ore.”
“That purchase and transmogrification of the thing purchased by manufacturing or industrial process and resale (the transaction being one of such magnitude that it might in ordinary course be the whole business for the time being of a person regularly engaged in the trade) is carrying on a trade within the meaning of the Statute for the time being, although the transaction be isolated, is a legal interpretation of the Statute.”
“I do not believe a land-owner would be liable for a moment, and I do not think that the Company is liable. I feel the force of what is said, that they were very enterprising. They did more than a lazy or a too conservative land-owner would do. They were enterprising, but I do not think they did more, as Mr. Romer put it, than act as the machinery by which the development and progressive sale could be carried out, and by which alone, practically speaking, it could be carried out, when the lands were subject to a trust of this kind.”
“It may seem that too much emphasis has been put on motivation, but that is probably due to the nature of the argument submitted for the appellant. Before their Lordships, counsel for the appellant came near to submitting that, if it is a purpose of the taxpayer to acquire something for his own use and enjoyment, that is sufficient to show that the steps which he takes in order to acquire it cannot be an adventure in the nature of trade. In their Lordships' judgment that is going much too far. If, in order to get what he wants, the taxpayer has to embark on an adventure which has all the characteristics of trading, his purpose or object alone cannot prevail over what he in fact does. But if his acts are equivocal his purpose or object may be a very material factor when weighing the total effect of all the circumstances. In the present case not only has it been held that the appellant's dominant motive was to make a profit, but her actions are suggestive of trading as regards the greater part of the site which she bought. She had to and did make arrangements for its subdivision and immediate sale to the nine sub-purchasers before she could carry out her contract with the vendor of the site. The case may be a borderline one in the sense that the Board of Review might have taken a different view of some of the evidence. But, on the facts as found by the board, their Lordships find it impossible to hold that in law they were not entitled to reach their conclusion.”
“I do not read the decision of this Court in Hudson's Bay Co. v Stevens, or the decision of Rowlatt, J., in Rand v Alberni Land Co., Ltd. as laying down a proposition of law to the effect that, whenever a property owner develops his land by making roads and laying sewers and selling plots, he can never be carrying on a trade. This would be opening the door very wide to modern property developers. I think the highest it can be put is that usually in such circumstances the property owner is not carrying on a trade, but whether in the particular case he is or is not doing so must depend on the facts of the particular case. It is essentially a question of fact and degree. I think one of the circumstances which is in favour of the Commissioners view is that the Appellant, when he bought out his sister's share, did so, as the Commissioners have found, with the intention of making a profit out of the whole of the land by reselling it after development. Although the intention with which the land was acquired is by no means an absolute criterion, it is a factor, when there is doubt, which can be thrown into the balance, as is laid down by Lord Reid in Iswera v Commissioner of Inland Revenue, [1965] 1 W.L.R. 663 (P.C.). It is further to be observed that, at the time the Appellant acquired his sister's share, the whole of the land, as it was, was worth something between£24,000 and£25,000 . The Appellant spent as much again on developing the land with a view to reselling portions of it at a profit. Again I do not think this is by any means conclusive, and the Commissioners might well have come to a different conclusion. But on the facts here it seems to me quite impossible to say that, because they decided as they did, they must have been misdirecting themselves in law, and equally impossible to say that no reasonable man could have reached the same conclusion.”
“It is clear that the question whether or not there has been an adventure in the nature of trade depends on all the facts and circumstances of each particular case and depends on the interaction between the various factors that are present in any given case. The most that I have been able to detect from the reading of the authorities is that there are certain features or badges which may point to one conclusion rather than another. In relation to transactions such as this, that is to say a one-off deal with a view to making a capital profit, there do seem to be certain things which the authorities show have been looked at. For convenience I will refer to them in a moment. But I would emphasise that the factors I am going to refer to are in no sense a comprehensive list of all relevant matters, nor is any one of them so far as I can see decisive in all cases. The most they can do is provide common sense guidance to the conclusion which is appropriate. The matters which are apparently treated as a badge of trading are as follows: (1) That the transaction in question was a one-off transaction. Although a one off transaction is in law capable of being an adventure in the nature of trade, obviously the lack of repetition is a pointer which indicates there might not here be trade but something else. (2) Is the transaction in question in some way related to the trade which the taxpayer otherwise carries on? For example, a one-off purchase of silver cutlery by a general dealer is much more likely to be a trade transaction than such a purchase by a retired colonel. (3) The nature of the subject matter may be a valuable pointer. Was the transaction in a commodity of a kind which is normally the subject matter of trade and which can only be turned to advantage by realisation, such as referred to in the passage that the chairman quoted from Reinhold? For example, a large bulk of whisky or toilet paper is essentially a subject matter of trade, not of enjoyment. (4) In some cases attention has been paid to the way in which the transaction was carried through: was it carried through in a way typical of the trade in a commodity of that nature? (5) What was the source of finance of the transaction? If the money was borrowed that is some pointer towards an intention to buy the item with a view to its resale in the short term; a fair pointer towards trade. (6) Was the item which was purchased resold as it stood or was work done on it or relating to it for the purposes of resale? For example, the purchase of second-hand machinery which was repaired or improved before resale. If there was such work done, that is again a pointer towards the transaction being in the nature of trade. (7) Was the item purchased resold in one lot as it was bought, or was it broken down into saleable lots? If it was broken down it is again some indication that it was a trading transaction, the purchase being with a view to resale at profit by doing something in relation to the object bought. (8) What were the purchasers' intentions as to resale at the time of purchase? If there was an intention to hold the object indefinitely, albeit with an intention to make a capital profit at the end of the day, that is a pointer towards a pure investment as opposed to a trading deal. On the other hand, if before the contract of purchase is made a contract for resale is already in place, that is a very strong pointer towards a trading deal rather than an investment. Similarly, an intention to resell in the short term rather than the long term is some indication against concluding that the transaction was by way of investment rather than by way of a deal. However, as far as I can see, this is in no sense decisive by itself. (9) Did the item purchased either provide enjoyment for the purchaser (for example, a picture) or pride of possession or produce income pending resale? If it did, then that may indicate an intention to buy either for personal satisfaction or to invest for income yield, rather than do a deal purely for the purpose of making a profit on the turn. I will consider in a moment the question whether, if there is no income produced or pride of purchase pending resale, that is a strong pointer in favour of it being a trade rather than an investment.”
“In Ensign Millett J regarded the speculative hope of profit as indicative of trade. (But we note that in Harrison 40 TC 281 at 293 Lord Reid says that absence of profit motive may not be fatal to a conclusion that a person is trading.) In Eclipse (at [398]) the FTT regarded the speculative hope of profit as an important factor. This factor is present. There was a possibility of profit and a risk of loss. We discuss the nature and the measurement of the likelihood of such a profit later in this decision, but we conclude that there was a speculative hope of profit of some kind.”
“In particular, focus on organisation and repetition as indicators of trading, plus the amount of work involved, can lead to error: building a portfolio of investments can involve repetition and significant organisation, but it is still investment. Contrary to the suggestion by the FTT at [1351], investing in, for example, unquoted shares and securities, particularly private equity, real estate and infrastructure investments, can involve a significant amount of complexity, work on legal documentation and subsequent monitoring.”
“Those observations are undoubtedly true, as far as they go, but they cannot begin to establish any error of law on the part of the FTT. Such activity may be a hallmark of certain types of investment, but equally it is a characteristic of many types of trade. In the present context, it was for the FTT to decide what weight (if any) to accord to these features of the overall picture which it built up and had to assess.”
“At the most basic level, it is now clear from Eclipse, if it was not clear before, that the question whether what the taxpayer actually did constitutes a trade has to be answered by standing back and looking at the whole picture: see [111]. Although it is a matter of law whether a particular activity is capable of constituting a trade, whether or not it does so in any given case 'depends upon an evaluation of all the facts relating to it against the background of the applicable legal principles': see [112]. It follows that it can never be appropriate to extract certain elements from the overall picture and treat them, viewed in isolation, as determinative of the issue. But that, in essence, is what Mr Furness is inviting us to do, when he says that the purchase and leaseback (or onward lease) of a film are inherently trading activities. There is no dispute that such activities are capable of forming part of a trade, and in many contexts the only reasonable conclusion would be that they did form part of a trade. But when the whole picture is examined, the conclusion will not necessarily be the same. The exercise which the FTT has to undertake is one of multi-factorial evaluation, and their conclusion can only be challenged as erroneous in point of law on Edwards v Bairstow grounds: see Eclipse at [113].”