Upper Tribunal dismisses HMRC's appeal and confirms that taxpayers were carrying on a business with a view to profit

In HMRC v GCH Corporation Ltd and others [2026] UKUT 00219 (TCC), the Upper Tribunal (UT) dismissed HMRC's appeal and confirmed that GCH Active LLP (the LLP) was carrying on a business with a view to profit, for the purposes of section 59A, Taxation of Chargeable Gains Act 1992 (TCGA), at the time loan notes were transferred to it. As the requirements of section 59A were satisfied, the transfers were capital contributions, rather than disposals, and no Chargeable Gains Tax (CGT) liability arose.

Background

The respondents in this appeal were GCH Corporation Ltd (the Company), the LLP and three settlements created by Mr Gregory Hutchings, for the benefit of his family (the Trusts). 

The respondents participated in a tax mitigation arrangement implemented ahead of a takeover of Tomkins plc. As part of the arrangement, loan notes were transferred to the LLP by its members (the Transfers); some of whom acted through a nominee, HK Timbers (Holdings) Ltd (HKT). In addition to participating in the arrangement, HKT intended that the LLP would trade shares for a profit. The LLP's business was defined as "acquiring, holding and selling shares, securities and other assets with a view to profit". Before the Transfers, using money lent by HKT, the LLP had bought five shareholdings, sold two shareholdings at a profit and received dividends. HKT had undertaken research on potential share acquisitions, but it had not made further acquisitions before the LLP was liquidated. 

HMRC issued the following closure notices and assessments on the basis that the Transfers gave rise to a disposal for CGT purposes:

(i)   A closure notice to the LLP amending its tax return to reflect the fact that it was tax opaque and so should have submitted a corporation tax return and not a self-assessment return, but reducing the tax returned to nil.

(ii)  A closure notice to the Company amending its tax return to reflect the fact that a transfer by the Company to the LLP of loan notes was, in consequence of the LLP's tax opacity, a disposal, and amending the Company's return to reflect tax due of £399,114.82.

(iii) Assessments, issued under section 29, Taxes Management Act 1970 (TMA), to each of the Trusts assessing them to tax in respect of the Transfers on the basis the Transfers constituted disposals for CGT purposes. 

The taxpayers appealed to the First-tier Tribunal (FTT). 

FTT decision 

The appeals were allowed. 

The primary issue for determination by the FTT was whether, at the time the loan notes were transferred to the LPP, it was 'carrying on a trade or business with a view to profit', for the purposes of section 59A, TCGA.

The FTT considered the 'badges of trade' and concluded that the LLP's activities were not sufficient to amount to a trade but it was carrying on a business with a view to profit, for the purposes of section 59A, TCGA. 

The fact that the LLP was set up, in part, to facilitate the loan note tax mitigation arrangement was not sufficient to alter the fact that the LLP was carrying on a business and the FTT noted that the business purpose of the LLP included the intention to make a profit and it did in fact make a profit.

The validity of the assessments was challenged by the taxpayers on the basis that HMRC had not made a discovery, for the purposes of section 29, TMA. The FTT was satisfied that HMRC had made a valid discovery. 

HMRC appealed to the UT on the grounds that the FTT had erred in its interpretation of 'business' and its application to the facts of the case. HMRC also argued that the FTT erred in failing to provide any, or any adequate, reasoning for determining that the LLP was carrying on a business 'with a view to a profit'. 

The taxpayers cross-appealed arguing that the FTT should have found that the LLP was carrying on a trade with a view to profit at the time of the contribution of the loan notes to the LLP and that the FTT erred in law in dismissing their arguments in relation to the validity of the discovery assessments. 

Read our blog on the FTT decision in GCH Corporation Limited and others. 

UT decision

HMRC's appeal and the respondents' cross-appeals were dismissed. 

The UT held that the FTT had not erred in determining that the LLP was carrying on a business. The FTT's conclusion on this point was an evaluative decision for the FTT which it took based on the extensive findings of fact it had made. It was not therefore open for the UT to disturb that conclusion unless the UT considered the FTT's conclusion to be irrational or wrong in law. 

In the UT's view, 'business', in section 59A(1), TCGA, takes its ordinary commercial meaning and encompasses investment business. The UT noted that in this case the LLP's business was not simply passive through holding shares and receiving dividend income, it made its profits by buying and selling shares. 

The UT considered that the FTT had appropriately decided, applying the Ramsay principle (which requires a purposive interpretation to legislation), that the question whether the transactions carried out by the LLP amounted to a business, had to be determined by reference to all the LLP's transactions, not just the loan note transactions. 

Additionally, in the UT's view, the FTT had taken proper account of the statutory context and had correctly distinguished the present case from Rashid v Garcia [2002] 12 WLUK 272 (in which it was held that 'business' should not extend to passively held investments), due to its different statutory context.

The UT rejected HMRC's argument that the FTT erred in failing to provide any, or any adequate, reasoning for determining that the LLP was carrying on a business with a view to a profit, on the basis that the FTT had considered this issue sufficiently in accordance with the Practice Direction on reasons for decisions, issued by the Senior President of Tribunals, and had provided sufficient reasons for the conclusions it had reached.

With regard to the respondents' cross-appeals, the UT held that there was no reason for it to disturb the findings made by the FTT given that the FTT identified the correct principles and there was nothing to suggest that it had not applied those principles correctly. The UT therefore rejected the respondents' argument that the LLP was carrying on a trade with a view to profit at the time of the contribution of the loan notes to the LLP.

The UT also found no error in the FTT's analysis of the discovery assessments and concluded that the FTT was entitled to decide that there had been a discovery, for the purposes of section 29, TMA, and that the assessments were valid. 

Comment

The UT's analysis of the meaning of 'business' and the application of the Ramsay principle of purposive statutory construction will be of general interest to taxpayers. 

It is also note worthy that neither the FTT nor the UT was unduly influenced by the fact that the taxpayers had participated in a tax mitigation arrangement, notwithstanding the best efforts of HMRC to persuade them otherwise. Both tribunals carried out a thorough objective analysis of the relevant facts and law in arriving at their respective decisions.

Read the UT decision in GCH Corporation Limited and others.