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HMRC internal manual

Business Income Manual

Meaning of trade: badges of trade: profit-seeking motive

Evidence that the sole object of acquiring an asset was to re-sell it at a profit, without any intention of holding it as an investment, is a pointer to the conclusion that a trade is being carried on. However, the presence of a profit-seeking motive is not necessarily a decisive pointer to the existence of a trade. It is only one factor to be weighed along with all the other relevant factors.

Some assets are more likely to be held as investments than others are.

For example, shares may be bought with the intention of making a profit. However, because of the inherent investment nature of shares, in the absence of enough of the other badges of trade, the purchaser will be making and realising capital investments and not trading.

In Salt v Chamberlain [1979] 53TC143 which concerned losses made by an individual through the buying and selling of quoted securities with the intention of making a profit, Oliver J said at page 154:

‘Where the question is whether an individual engaged in speculative dealings in securities is carrying on a trade, the prima facie presumption would be that he is not.’

Despite a claim that other badges of trade were present, the General Commissioners held that the transactions were not a trade and the court declined to disturb their finding.

The existence of a profit-seeking motive is a question of fact that is not necessarily determined by the person’s professed intentions. Where appropriate it can be inferred from the surrounding circumstances.

In Rutledge v CIR [1929] 14TC490 the Lord President said at page 496:

‘It has been said, not without justice, that mere intention is not enough to invest a transaction with the character of trade. But, on the question whether the appellant entered into an adventure or speculation, the circumstances of the purchase, and also the purchaser’s object or intention in making it, do enter, and that directly, into the solution of the question.’

In CIR v Hyndland Investment Co Ltd [1929] 14TC694 he also said at page 699:

‘The question is not what business does the taxpayer profess to carry on, but what business does he actually carry on.’

See also:

BIM20215 Profit-seeking motive - not the main purpose
BIM20220 Profit-seeking motive - fiscal purpose