Market leading insight for tax experts
View online issue

Share losses

printer Mail
Seldom a silver lining.

By and large, if you make a profit on a transaction then you would – unless you can make a case for it being tax-free – normally quite like it to be treated as capital gain. Under current laws, at least; whether a future government may yield to the temptation to equalise rates of capital gains tax and income tax remains to be seen.

On the other hand, if you are unfortunate enough to suffer a loss on a transaction, being able to treat it as a trading loss is likely to be attractive, especially if you have other forms of income against which the loss may be relieved.

The First-tier Tribunal (FTT) – and before that the General and Special Commissioners – have over the years seen a succession of amateur share dealers seeking tax relief for losses arising from their buying and selling of shares. The latest is N Henderson v HMRC [2023] UKFTT 281 (TC). After receiving an inheritance in 2014, Mr Henderson used a part of it to engage in ‘execution-only’ share transactions. All of the transactions were on his own account: he did not buy or sell on behalf of third parties and was not a registered or regulated trader. The case does not reveal the extent of Mr Henderson’s losses, but losses there were, in 2015/16 and 2016/17. In fairness to Mr Henderson, it must be said that there were profits in the following year, albeit that they were not sufficient to cover his earlier losses.Mr Henderson sought relief against income tax for the losses on the basis that he had been carrying on a trade of share dealing. HMRC demurred as it routinely does in such cases: he was investing, not trading.

The courts have said in the past that there is a prima facie presumption that an individual engaged in speculative dealings in securities is not carrying on a trade (the position may be different for companies).  The challenge for any taxpayer in Mr Henderson’s position is in getting over the hurdle of showing that the circumstances are sufficiently unusual to displace that presumption. To stand much chance of doing so, it’s likely that the putative trader will need to show:

  • a high volume of transactions;
  • substantial commitment of time to the business; and
  • a coherent business plan and research-based investment strategy.

Mr Henderson, by contrast, had made only 81 purchases and 85 sales over the two years and spent only an hour or two a day on his activities. He had at different times given various figures as his target profit, ranging from around £4,000 to £6,000 a month. Whatever the figure, the FTT observed that his evidence ‘indicated that this was the amount he thought he needed and hoped to achieve; it was not an amount that was calculated as achievable from any particular plan’.  Further, the maximum funds committed did not exceed £100,000; and as the FTT said, ‘a return of £6,000 per month on funds employed of £100,000 seems ambitious and there was no indication that any serious thought had been applied to how this would be achieved.’

All in all, Mr Henderson’s case was a hopeless one and was duly rejected.

As a footnote, it’s worth highlighting ITA 2007 s 74A, which was briefly mentioned in the case. This provides that if you spend less than ten hours a week on your loss-making trading activity, you can’t relieve more than £25,000 a year against other income. The point to note is that it’s of general application: whatever the trade, however genuine your trading loss, however legitimate your reasons for needing to devote comparatively little time to the trade, if the ten hours aren’t met the restriction applies.
Issue: 1616
Categories: In brief
EDITOR'S PICKstar
Top