One of the many uncertainties with Business Asset Disposal Relief (the relief formerly known as something else) is the definition of a trading company in TCGA 1992 s 165A(3):
‘a company carrying on trading activities whose activities do not include to a substantial extent activities other than trading activities’.
Section 165A(4) goes on to explain what trading activities mean, but there is no further assistance about what is meant by ‘to a substantial extent’.
The view of HMRC is set out in the Capital Gains Manual at CG64090, where they say ‘substantial in this context means more than 20%’.
But we can forget about that because the Upper Tribunal said in the case of Allam v HMRC [2021] UKUT 291 (TCC) that ‘it is not appropriate to apply any sort of numerical threshold as suggested by HMRC’s guidance’.
The Upper Tribunal did not think much of HMRC’s reliance on the IHT case of Farmer v HMRC [1999] SSCD 321 (Sp C 216) either. That was a case about a completely different relief, for a completely different tax in a completely different statute.
Views on the meaning of ‘substantial’ range from ‘mainly’, down to something just above insubstantial. No assistance can be derived from tax legislation either. For the Substantial Shareholding Exemption, it means 10%; for Social Enterprise Relief, it means 30%; for SDLT substantial performance, it is ‘most’. (I could go on.)
We now have some more guidance from the FTT in the case of Pontin v HMRC [2026] UKFTT 1166 (TC). The company was engaged in property investment and property development. The judge relied heavily on the judgment in Allam which had said:
‘substantial should be taken to mean of material or real importance in the context of the activities of the company as a whole ... The test is not confined to physical human activity but requires an overall consideration of what it is that the company does’.
The FTT considered the management activity of each element of the business, the income, expenditure and assets, and concluded that most of these factors showed that the property development business predominated. That is not enough, of course: what matters is whether the non-trading activities were carried on to a substantial extent.
Using the Allam formulation, the FTT said that the non-trading activities were not of material or real importance in the context of the activities of the company – and therefore were not substantial – so Mr Pontin qualified for his relief.
One of the many uncertainties with Business Asset Disposal Relief (the relief formerly known as something else) is the definition of a trading company in TCGA 1992 s 165A(3):
‘a company carrying on trading activities whose activities do not include to a substantial extent activities other than trading activities’.
Section 165A(4) goes on to explain what trading activities mean, but there is no further assistance about what is meant by ‘to a substantial extent’.
The view of HMRC is set out in the Capital Gains Manual at CG64090, where they say ‘substantial in this context means more than 20%’.
But we can forget about that because the Upper Tribunal said in the case of Allam v HMRC [2021] UKUT 291 (TCC) that ‘it is not appropriate to apply any sort of numerical threshold as suggested by HMRC’s guidance’.
The Upper Tribunal did not think much of HMRC’s reliance on the IHT case of Farmer v HMRC [1999] SSCD 321 (Sp C 216) either. That was a case about a completely different relief, for a completely different tax in a completely different statute.
Views on the meaning of ‘substantial’ range from ‘mainly’, down to something just above insubstantial. No assistance can be derived from tax legislation either. For the Substantial Shareholding Exemption, it means 10%; for Social Enterprise Relief, it means 30%; for SDLT substantial performance, it is ‘most’. (I could go on.)
We now have some more guidance from the FTT in the case of Pontin v HMRC [2026] UKFTT 1166 (TC). The company was engaged in property investment and property development. The judge relied heavily on the judgment in Allam which had said:
‘substantial should be taken to mean of material or real importance in the context of the activities of the company as a whole ... The test is not confined to physical human activity but requires an overall consideration of what it is that the company does’.
The FTT considered the management activity of each element of the business, the income, expenditure and assets, and concluded that most of these factors showed that the property development business predominated. That is not enough, of course: what matters is whether the non-trading activities were carried on to a substantial extent.
Using the Allam formulation, the FTT said that the non-trading activities were not of material or real importance in the context of the activities of the company – and therefore were not substantial – so Mr Pontin qualified for his relief.
