A: HMRC’s Business Income Manual (BIM) addresses this issue in two sections. The guidance at BIM20090 discusses "hobbies and artificial trades", focusing on denying loss relief when a profit in one year is claimed to justify trading losses in other years.
More detailed guidance at BIM20205 describes the badges of trade.
Relevant factors for your client include:
- Number of transactions.Nature of the asset.
- Similar trading transactions or interests.
- How the sale was conducted.
According to HMRC, it is essential to ascertain all relevant facts to decide whether an activity constitutes a trade. Considering the aforementioned factors, your client's activities are more likely to be viewed as a hobby rather than a trade.
These publications from Markel Tax were correct at the time of going to press and should be considered as principles-based guidance only. To check current validity, call the Markel Tax helpline. ICAEW (as distributor) disclaims all liability for any errors or omissions.
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