UK Tax Questions? Ask a UK Tax Advisor for answers ASAP
Hi Its MamaTax Here!Thanks for the question.
To distinguish between trading and capital gains, the HMRC commonly refer the Badges of Trade – however this is not a black/white distinction in all the cases. The following are considered (not limited to these):
1. Motive- whether holding it for long term investment or short term profit making. This is the most fundamental and significant test. Also google this case to see this principle in application. Salt v Chamberlain 1979
2. Number of transactions - A single isolated transaction generally cannot be a trade. The opposite is true. that is not the case. See case Leach v Pogson 1962
3. Nature of asset see case Rutledge v CIR 1921,
4. Similarity of transactions eg taxpayer has an existing trade, a similarity of this trade to other quite separate transactions may be a strong pointer towards them being trading activities.
5. Length of ownership
In the case of HMRC thinking that this is trade, the onus is on your client to prove that the opposite is true –however this will be a big task as most of the above pointers seem to support that these transactions are trading and not capital gains.
Hope this helps.