CG17921i - Taper relief: anti-avoidance rules - periods of inactivity - meaning of business

The meaning of business is also discussed at CG17919 in the context TCGA92/SchA1/Para11 and its use in TCGA 1992 generally.

The concept of a business is central to parts of the capital gains code. For example, TCGA92/SchA1 S162 concerns the transfer of a business to a company as a going concern and TCGA92/SchA1 S163 provides for retirement relief on the disposal of a business or business assets. In the case of TCGA92/SchA1 S163, for example, relief is restricted to assets used for a trade, profession, etc and this does not include assets used for a lettings business within Schedule A. However, a lettings business will be a business for the purposes of TCGA92/SchA1/Para11A.

The meaning of business is not defined for the purposes of TCGA92/SchA1/Para11A. Generally it should not be difficult to identify whether or not a business is being carried on. Inevitably there will be a few cases on the margin where the facts will have to be considered carefully.

The first point to note is that `business' and `trade' are not synonymous. Whilst all trades are businesses, there are many businesses that are not trades. Property letting, as opposed to the provision of services to tenants, may be a business though not a trade. The holding of investments can also amount to a business. Indeed, there is judicial support for the view that this does not have to be actively carried on to be a business of making investments (see, for example, CIR - v - The Korean Syndicate Ltd 12TC181). But, TCGA92/SchA1/Para11A will apply where the "business" is not regarded as active because of the restrictions in TCGA92/SchA1/Para11A (4).

On the other hand, there are several cases where it has been held that a trading company which has ended its main activities but has retained its investment portfolio is not carrying on a business of holding investments. The most recent case is Jowett v O'Neill and Brennan Construction Ltd 70TC566. In that case, Mr Justice Park acknowledged that whilst the normal conclusion, when a company lays out its assets and earns an income return, is that it is carrying on a business there will, as a matter of law, be exceptional cases where the facts indicate that no business is being carried on by the company. As Park J. pointed out in the O'Neill case, it is the exception rather than the rule that means a company is not carrying on a business when it puts its money on deposit. But - because of the restrictions TCGA92/SchA1/Para11A (4) - there needs to be business activities beyond just holding money on deposit for a company to count as active.

TCGA92/SchA1/Para11A makes clear that it is not necessary for the business to be conducted on a commercial basis or with a view to the realisation of a profit. References to carrying on a business include holding assets and managing them (TCGA92/SchA1/Para11A (3)(b)). Simply holding assets will not necessarily amount to carrying on a business.