Trustees Of BT Pension Schemes & Ors v HM Inspector Of Taxes

Whether an activity amounts to trading is ordinarily a question of fact and degree. Subject matter, frequency, organisation and the acceptance of risk for reward may be important, but none is necessarily decisive. Where the commercial character of the activity is ambiguous, the tribunal must assess all relevant facts and circumstances in the round, including purpose or intention. A connected transaction may take its colour from the principal investment activity even if it is not essential to it or involves different parties. An appellate court must respect a fact-finding tribunal’s evaluation unless there is an error of law which vitiates the decision or only one reasonable conclusion was open. Tax relief provisions cannot be given a special purposive meaning which the statutory language does not bear.

The appellants were trustees of three large occupational pension schemes. They appealed from Lightman J’s decision, reported at [1998] STC 1075, which had allowed the Revenue’s appeal from the Special Commissioners.

The Special Commissioners had held that the trustees’ sub-underwriting activities were not trading activities and that the income therefore fell within the relevant pension scheme exemption. Lightman J reversed that conclusion and also upheld the view that any taxable income was chargeable at the additional rate. The central issues were whether the sub-underwriting income was trading income under Case I of Schedule D and whether the appellate court should interfere with the Commissioners’ evaluation.

1. Appeal allowed. The order of Lightman J was set aside, the Special Commissioners’ decision was restored, and costs were awarded in the Court of Appeal and below. Leave to appeal to the House of Lords was refused.
2. The question whether an activity amounts to a trade is generally one of fact and degree. An appellate tribunal may interfere where the Commissioners have erred in law in a way which vitiates their conclusion, or where the facts admit only one reasonable conclusion. Otherwise, a conclusion lying within the permissible range of evaluation must stand. The Commissioners’ decision fell within that permissible range.
3. The statutory reference to pension scheme relief could not justify attributing a special meaning to “trade”. The relevant guide was the established case law on Case I of Schedule D, not speculation about Parliament’s purpose.
4. Subject matter, frequency, organisation and the acceptance of risk for reward were indicators of trading but were not conclusive. The trustees’ sub-underwriting was capable of being viewed as integral to their index-tracking investment process. A subsidiary transaction may take its colour from a connected transaction even where it is not essential to it and the transactions involve different parties.
5. Where the activity is ambiguous, purpose or intention is a material factor, considered together with all other circumstances. The inquiry should ordinarily be conducted in the round rather than by separating the analysis into two stages, first examining trading characteristics and then motivation.
6. The secondary issue did not require determination because the principal issue disposed of the appeal. The court nevertheless agreed that “other property” in s.686(2) of the Income and Corporation Taxes Act 1988 had a narrower meaning in context than the trustees contended, although that conclusion was reached through contextual indications rather than the blunt application of ejusdem generis.

• Court of Appeal (Civil Division) — appeal from Lightman J allowed; the judge’s order was set aside and the Special Commissioners’ decision restored.
• Special Commissioners — appeals by the trustees allowed on the principal issue, with the decision reported at [1998] STC 1075.