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Upper Tribunal decision in Ingenious Games case

Upper Tribunal decision in Ingenious Games case

The Upper Tribunal has dismissed the taxpayer’s appeal in this case.

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The Upper Tribunal (UT) has published its decision in Ingenious Games LLP, Inside Track Productions LLP and Ingenious Film Partners 2 LLP v HMRC, dismissing the taxpayer’s appeal. Ingenious established a number of partnerships designed to allow investors to access income tax relief on their investment by claiming trading losses to offset income. HMRC have challenged the validity of these partnership structures on numerous grounds. Specifically, on the basis that the LLPs did not carry on a trade with a view to profit (such loss relief was disallowed), that the expenditure incurred was capital rather than revenue in nature (thus reducing or eliminating the losses incurred) and whether the partnership losses had been correctly calculated in accordance with GAAP.

The First-tier Tribunal (FTT) had previously concluded that Inside Track Productions LLP and Ingenious Film Partners 2 LLP were trading with a view to profit. However, the expenditure incurred which had been claimed as a revenue deduction, was in fact capital in nature and therefore disallowable, thus reducing or eliminating trading losses. In respect of Ingenious Games LLP, the FTT had ruled that the partnership did not carry on a trade with a view to profit such that trading losses were disallowable.

Ingenious filed an appeal to the UT, and the case was concluded recently. The UT found in favour of HMRC and the appeal was dismissed. The UT concluded that:

  • None of the LLPs were carrying on a trade; 
  • None of the LLPs were carrying on a trade with a view to profit;
  • The expenditure incurred by the LLPs was capital rather than income in nature; and
  • The FTT was entitled to conclude that a proportion of the expenditure incurred was not wholly and exclusively for the purposes of the trade. 

The full judgment can be found here.

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