CG17953d - Taper relief: Trading company and holding company of a trading group - periods before 17 April 2002 - meaning of "wholly": Taper relief does not apply to disposals before 6 April 1998 or after 6 April 2008

In the context of the definition of a trading company 'wholly' means that the company had no purpose other than to trade. Wholly therefore means solely.

Whether something is wholly for a trading purpose can only be considered in light of the requirements of the company's trade. One common situation is where a company sets aside funds and receives investment income. The fact that investment income is generated does not automatically mean that a company's purpose is not wholly trading. Whether the generation of income from investments is or is not evidence of a non-trading purpose must ultimately depend on the nature of the company's trade and whether the holding of the investment is closely related to the conduct of that trade. If it can be shown that holding any investment is integral to the conduct of the trade or is a short-term lodgement of surplus funds held to meet demonstrable trading liabilities, then this is unlikely to be taken as evidence of non-trading purposes.

For example, if a company has surplus funds which it intends to use for an expansion of the trading business in the near future, and it invests these in equities in the short term, then it may be that the company's purpose continues to be wholly trading during the period those equities are held.

A company which makes an investment falling outside the categories above (which may include acquiring and retaining a holding of shares in another company as part of a wider business strategy beyond that related to the requirements of the trade) still has the safety net of the "substantial test" (see below). Examples of such investments include those made in the expectation of a return in the longer term and those offering unrelated, indirect or non-specific benefits to the company's trade.