Wrong trade

The taxpayer subscribed for shares in the company IR on various dates in 2002, 2003 and 2004. The business failed and the shares became worthless.

He stated in his 2005/06 tax return that a deemed negligible value disposal of the shares had taken place on 5 April 2006, and he claimed the capital loss against his income for 2004/05 under TA 1988, s 574(1) (now ITA 2007, s 131).

HMRC refused on the basis IR had not been an eligible trading company under ITA 2007, s 137.

The taxpayer appealed, saying the business was formed with the intention of developing a computer program to facilitate the provision of financial services.

The First-tier Tribunal concluded that the company had been set up to provide residential mortgages, which was not a qualifying trade for the purpose of s 137, meaning IR was not a qualifying trading company.

The taxpayer’s appeal was dismissed.

Issue: 4486 / Categories: Tax cases , Income Tax