Corporation tax - group relief - transferred investment property not held by acquiring company as trading stock

New Angel Court Ltd v Adam (Inspector of Taxes): ChD (Mr Justice Lawrence Collins): 25 July 2003

The taxpayer carried on business as a property dealing company.

During 1996, investment properties held by subsidiaries in the same group of companies were transferred, in arm's length transactions, to the taxpayer so that it could use its dealing expertise in a volatile market to optimise the timing and value of their disposal.

Special commissioners dismissed the taxpayer's appeal against a notice of determination of loss for corporation tax purposes for the year to December 1996, in which the Inland Revenue refused to take any account of the loss to the taxpayer on selling the properties.

The taxpayer, claiming it had acquired the properties as trading stock, appealed.

Jonathan Peacock QC (instructed by Jonathan Levy) for the taxpayer; Philip Jones (instructed by the Solicitor, Inland Revenue) for the inspector of taxes.

Held, dismissing the appeal, that the taxpayer, to be entitled to claim an allowable loss for group relief purposes had to establish acquisition of the properties as trading stock as defined in section 288(1) of the Taxation of Chargeable Gains Act 1992, as property sold in the ordinary course of its trade; that the use of a property dealing company to acquire and market commercial properties held as investments by other group companies did not transform them into trading stock; that the commissioners' decision that the taxpayer was used merely as a vehicle for selling the properties and had no independent purpose entitled them to conclude that the taxpayer's sale transactions did not give rise to trading losses.