In A Ali v HMRC [2016] UKFTT 8 (6 January 2016), the FTT found that an activity consisting in the buying and selling of shares constituted a trade, so that losses generated by it could be set off against income from other activities.
Mr Ali used the profits of his successful pharmacy business to buy and sell publicly listed shares. The issue was whether the losses stemming from this activity were losses of a commercial trade, so that they could be set off against the profits of the pharmacy business (ITA 2007 ss 64 and 66).
Referring to the case law on the buying and selling of securities, the FTT observed that ‘the activity in which the appellant engaged sat in the “no-man’s land of fact and degree” (to use the phrase coined by Lord Simon of Glaisdale in Ransom v Higgs [1974] 50 TC 1 at 96)’. The role of the FTT was therefore to factually evaluate whether it amounted to a trade.
The FTT’s starting point was that Mr Ali’s activities bore classic hallmarks of ‘trading’. Over an extended period of time, he had bought assets with the intention of selling them on at a profit. Furthermore, four of the badges of trade (the length of the period of ownership, the frequency of similar transactions, the circumstances that were responsible for the realisation, and motive) pointed firmly towards trading.
However, Salt v Chamberlain [1979] STC 750 was authority for the proposition that the activity of speculating in shares can look like trading and yet not constitute a trade, because it really consists of ‘gambling’. The FTT noted that Mr Ali was self-funded, so that he had no external stakeholders and could engage in gambling transactions if he so chose. However, his business plan (although unsophisticated) and the fact that he pursued it in a sufficiently organised manner pointed away from gambling. Mr Ali had therefore been trading. Similarly, the fact that his endeavour had been unsuccessful did not make it uncommercial and it was clear that he had aimed to profit.
Why it matters: The FTT accepted that Mr Ali may have been overconfident and may have taken excessive risks. It pointed out, however, that these were not uncommon traits of self-made business entrepreneurs and were very much appropriate to a ‘trading’ activity. Similarly, the FTT accepted that, particularly ‘in the age of the internet’, a share trading activity could be operated ‘on a shoe string’.
In A Ali v HMRC [2016] UKFTT 8 (6 January 2016), the FTT found that an activity consisting in the buying and selling of shares constituted a trade, so that losses generated by it could be set off against income from other activities.
Mr Ali used the profits of his successful pharmacy business to buy and sell publicly listed shares. The issue was whether the losses stemming from this activity were losses of a commercial trade, so that they could be set off against the profits of the pharmacy business (ITA 2007 ss 64 and 66).
Referring to the case law on the buying and selling of securities, the FTT observed that ‘the activity in which the appellant engaged sat in the “no-man’s land of fact and degree” (to use the phrase coined by Lord Simon of Glaisdale in Ransom v Higgs [1974] 50 TC 1 at 96)’. The role of the FTT was therefore to factually evaluate whether it amounted to a trade.
The FTT’s starting point was that Mr Ali’s activities bore classic hallmarks of ‘trading’. Over an extended period of time, he had bought assets with the intention of selling them on at a profit. Furthermore, four of the badges of trade (the length of the period of ownership, the frequency of similar transactions, the circumstances that were responsible for the realisation, and motive) pointed firmly towards trading.
However, Salt v Chamberlain [1979] STC 750 was authority for the proposition that the activity of speculating in shares can look like trading and yet not constitute a trade, because it really consists of ‘gambling’. The FTT noted that Mr Ali was self-funded, so that he had no external stakeholders and could engage in gambling transactions if he so chose. However, his business plan (although unsophisticated) and the fact that he pursued it in a sufficiently organised manner pointed away from gambling. Mr Ali had therefore been trading. Similarly, the fact that his endeavour had been unsuccessful did not make it uncommercial and it was clear that he had aimed to profit.
Why it matters: The FTT accepted that Mr Ali may have been overconfident and may have taken excessive risks. It pointed out, however, that these were not uncommon traits of self-made business entrepreneurs and were very much appropriate to a ‘trading’ activity. Similarly, the FTT accepted that, particularly ‘in the age of the internet’, a share trading activity could be operated ‘on a shoe string’.
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