Alan Pontin & Ors v The Commissioners for HMRC

Facts

On 2 June 2016 the four appellants, Alan, Thomas, Carol and Benjamin Pontin, completed the sale of their shares in Highland Holdings Limited ("HHL") to Crest Nicholson Operations Limited ("CNOL"). HHL's only asset was the entire issued share capital of Associated Properties UK Limited ("APUK"), which owned an 83-acre property at Highlands Farm, Henley on Thames. Each appellant had been a director of HHL from 14 January 2008 until 2 June 2016 and held at least 5% of its ordinary share capital and voting rights, and each claimed entrepreneurs' relief on the gain. APUK had originally let the property as an investment, but in 2011 its directors decided to develop it for residential housing and reclassified it in the accounts from fixed asset investment property to trading stock. In October 2012 the appellants granted CNOL a call option over the HHL shares; the option was exercised on 22 April 2016, so that the relevant one-year period ran from 22 April 2015. HMRC refused the relief, contending that APUK was not a trading company. The appellants appealed to the First-tier Tribunal. At the hearing HMRC abandoned their argument that APUK was not carrying on activities with a view to starting to trade, leaving only the "substantial extent" question under section 165A(3) of the Taxation of Chargeable Gains Act 1992.