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In the case Albermarle  4 LLP v Revenue & Customs [2013] UKFTT 83 (TC), the taxpayer(s) achieved a significant “double win”.

The first aspect of the case was that of whether or not the LLP was a trading entity or merely a property investment business. The nature of the activity of course determines the utility of the losses that arose in this case: trading losses may be set and/or carried back against other income of the same/previous year, while property losses are generally less flexible. The partnership acquired a number of untenanted retail outlets and other commercial property with relatively short term finance, with the stated intention of making them more marketable for resale as tenanted properties.

HMRC argued that these were really acquired for investment purposes and that the move to find tenants supported this.

The circumstances are interesting for a number of reasons – not least that the financial statements as prepared at the time treated the properties as having been acquired as fixed assets, and returned their sales as disposals of chargeable assets. However, the tribunal judge was happy to give greater weight to the proprietors’ intentions, as evidenced by correspondence over the period, and to find that the partnership was in fact trading in property.

The second aspect was on the technicality of whether or not HMRC were entitled to make a discovery assessment to challenge the claim to a loss. A discovery amendment under TMA 1970 s 30B is allowed where a loss of tax has been discovered, and from a partnership perspective that was not the case. The tribunal judge did make the point that there might have been discoveries against partners’ or members’ individual tax returns (where the nature of whether or not the losses were trading or merely investment would have been of more consequence) but that issue was not before him. The judge concluded that HMRC could only make a discovery in relation (broadly) to profits, rather than amounts which were unquestionably losses.