Former Highlands Farm owner wins tax tribunal appeal against HMRC

Alan Pontin and the former shareholders of Highland Holdings Limited (HHL) have won a tax tribunal appeal against HM Revenue & Customs (HMRC) over their claim for tax relief.

The case centred on the sale of shares in Associated Properties UK Ltd (APUK) in June 2016. APUK owned Highlands Farm on Greys Road in Henley.

Mr Pontin set up his businesses in Henley in 1996 with the help of venture capitalists. The company acquired a road surfacing business in 1997, which owned the Highlands Farm site. Most of the business was sold in 2000, although Mr Pontin retained a small stake in Associated Facilities Services Ltd and Highlands Farm was transferred to APUK.

The Highlands Farm site was originally held as an investment but was later earmarked for residential development. In October 2012, Mr Pontin and his family entered into an agreement with housebuilder Crest Nicholson, giving Crest Nicholson the option to buy HHL and APUK and build homes at Highlands Farm.

In 2016, the site was allocated for 170 homes in the Henley and Harpsden Neighbourhood Plan. Crest Nicholson exercised its option to buy HHL on 22 April 2016, and the sale of the shares was completed on 2 June 2016.

The dispute with HMRC centred on whether APUK could be considered a trading company for tax purposes, which was important in deciding whether the tax relief could be claimed.

HMRC initially argued that, during the year leading up to the sale, APUK was not carrying out enough activity to be considered a trading business. It also argued that, even if the company was trading, too much of its activity was non-trading.

In particular, HMRC pointed to the rental income APUK continued to receive from commercial properties on the site.

However, the Tribunal took a wider view. Rather than simply looking at how much rental income the company received, it considered the full range of its activities, including the work being done to move the site towards residential development, its income and spending, its assets and its overall commercial activity.

HMRC accepted that APUK had been carrying out activities with the intention of starting a trade and that the trade began as soon as reasonably possible. The remaining question was whether the company’s other activities, including receiving rental income, were substantial enough to prevent it from being treated as a trading company.

The ruling comes just days after HMRC amended controversial guidance which had suggested that landlords needed to spend at least 20 hours a week working on their property businesses to qualify for Incorporation Relief.

Although the Pontin case did not directly concern the 20-hour rule, it raises a related question: can work carried out by employees, contractors and professional advisers count when deciding whether someone is genuinely running a property business? That question remains particularly important following HMRC’s recent guidance, which accepts that landlords do not necessarily need to spend 20 hours a week on their business but still refers to activities being “personally undertaken”.

Alan Pontin said, “I’m very pleased that the very long standing case had been resolved.”