Can Managing Your Personal Share Portfolio be a Trade for Tax Purposes?

With widely differing degrees of success, many enthusiastic investors buy and sell shares on their own account in the hope of boosting their incomes – but can such activities be viewed as a 'trade' for tax purposes? The First-tier Tribunal (FTT) addressed that issue in a case of importance to private investors.

After receiving a large inheritance, a man retired from his professional job and used part of the money to buy and sell shares on an 'execution only' basis. He had access to a live feed of share prices and kept up with the financial news, also carrying out further research in the hope of picking winning investments. During a three-year period, however, his efforts produced overall losses.

He asserted that those losses were incurred in the course of trade and sought to deduct them, for tax purposes, from his other income during the relevant period. HM Revenue and Customs, however, did not accept that he was entitled to any such deduction. It asserted that his share dealing activities did not amount to a trade, within the meaning of Section 64 of the Income Tax Act 2007.

Ruling on his challenge to that outcome, the FTT noted that his ambition to generate sufficient income from his share dealing to meet his outgoings sadly came to naught. He was not a registered or regulated trader and did not buy or sell shares on behalf of third parties. He would make phone or email contact with a broker who would perform trades in accordance with his instructions.

He bought and sold shares at an average rate of a little over once a week during the relevant period and estimated that he spent one or two hours a day on activities connected to share dealing. He did not follow a specific pattern of work across the week and the FTT noted that his approach to investment was not particularly organised, systematic or effective.

Rejecting his appeal, the FTT found that he had not seriously planned or considered his share dealing in a way that would be expected of someone engaged in a trade or business. He did not devote the majority of his time to investment activities, instead fitting them in around other things he wanted to do. In managing a portfolio of personal investments, he was not undertaking a trade.