New Angel Court Ltd v HM Inspector of Taxes

For section 173(1) of the Taxation of Chargeable Gains Act 1992, the question is whether an asset was acquired as trading stock, not whether the transaction was arranged to secure a tax advantage. Fiscal considerations must be put aside. The asset must be of a kind sold in the ordinary course of the company’s trade and acquired for that trade with a view to resale at a profit. If that test is met, a group-wide purpose to realise assets cannot negative the acquiring company’s trading purpose. Intra-group arrangements and limited window-dressing do not alter the result where the actual conduct shows acquisition at market value, resale and a real profit.

New Angel Court Ltd, a property-dealing company, acquired nine commercial properties from companies in the Hilton Group. The properties had been held by the vendor companies as capital assets and were transferred to New Angel Court for onward sale. The company claimed that the acquisition generated an allowable trading loss of approximately £68 million under section 173(1) of the Taxation of Chargeable Gains Act 1992.

The Special Commissioners dismissed the appeal against the Revenue’s determination, and Lawrence Collins J dismissed the company’s appeal on 25 July 2003. The Court of Appeal had to decide whether the properties were acquired as trading stock, notwithstanding the group’s tax-driven purpose and its continuing policy of disposing of the properties.

1. Disposition. The appeal was allowed. The company acquired the properties as trading stock within section 173(1) of the Taxation of Chargeable Gains Act 1992. Costs were awarded in the appeal and below, subject to detailed assessment if not agreed. Leave to appeal to the House of Lords was refused.
2. Section 173(1) places intra-group transfers on substantially the same footing as an individual trader’s appropriation under section 161. The statutory opportunity to convert a capital loss into a trading loss means that the Revenue cannot object merely because the group sought a fiscal advantage.
3. The applicable test is whether the asset was of a kind sold in the ordinary course of the acquiring company’s trade and was acquired for the purposes of that trade with a view to resale at a profit. If that test is satisfied, the asset is acquired as trading stock. Fiscal considerations, whether described as motive, purpose or object, must be put entirely aside. They do not negative a trading purpose: Reed v Nova Securities Ltd [1985] 1 WLR 193, Coates v Arndale [1984] 1 WLR 1328 and Ensign Tankers (Leasing) Ltd v Stokes [1991] 1 WLR 341.
4. The observations in the Court of Appeal decision in Ensign Tankers distinguishing sole from paramount fiscal purpose were no longer good law. The related explanation of Coates v Arndale in Overseas Containers (Finance) Ltd v Stoker [1989] 1 WLR 606 CA was likewise no longer good law. A group purpose to realise assets cannot negative the trading purpose which exists when the acquiring company is considered in relation to its own trade.
5. The Special Commissioners correctly identified the issue as whether the properties were acquired as trading stock, but then erred by asking what had changed for the group and treating the continuing group purpose as decisive. Their finding that New Angel Court would have acquired trading stock when viewed in isolation was sufficient. The judge also erred by treating limited window-dressing as evidence that the acquisition was not trading stock. The market-price acquisition, subsequent sales, real profit and treatment of the additional properties confirmed the trading character of the transaction.

1. Court of Appeal (Civil Division) — [2004] EWCA Civ 242: appeal allowed, with costs in the appeal and below.
2. High Court, Chancery Division — Lawrence Collins J dismissed the taxpayer’s appeal against the Special Commissioners’ decision on 25 July 2003.
3. Special Commissioners — dismissed the taxpayer’s appeal against the Notice of Determination of loss dated 13 January 2003.