Badges of trade and interval of time

The last badge of trade is to do with the interval of time between purchase and sale.  As we’ve explored in earlier blogs, the way in which you acquired the asset can have a bearing on whether HMRC treat the sale as trading.  But what about the assets that you acquired some time ago and now wish to sell?

It’s true that a person who buys an asset and holds it for many years before disposing of it may be in a stronger position to argue that this is the realisation of an investment, than if the sale follows very soon after purchase. The opposite is also true – if it can be shown that, at the time of purchase, your intention was to sell quickly, that supports the idea of trading because trading implies the idea of turning over assets for profit. Even if no such intention is admitted or demonstrable, the fact that a sale did actually take place after a short period of ownership will support the inference that you are trading, if other badges of trade are also present.

Returning again to the case of Wisdom v Chamberlain (1968) a short period of ownership was a factor in favour of trading. Two years later, in the case of Johnston v Heath, the taxpayer was shown to have contracted to sell the asset before he had acquired it, and not surprisingly this was held to be an indicator that the intention was to trade.

The position was set out in the 1986 case of Marson v Morton and Others . The judge stated that if there was an intention to hold the object indefinitely, albeit with an intention to make a capital profit at the end of the day, that was a pointer towards a pure investment as opposed to a trading deal. On the other hand, if before the contract of purchase is made a contract for resale is already in place, that is a very strong pointer towards a trading deal rather than an investment. Similarly, an intention to resell in the short term rather than the long term is some indication against concluding that the transaction was by way of investment rather than by way of a deal.

So there you have it – it’s all in the intention at the time of purchase. And as we know, since the only person who actually knows what was intended is you, HMRC and ultimately the courts have no option but to infer what you intended from your actions. You’ll always be at some risk if the sale takes place within a short period of time after acquiring the asset. And if you’re ‘buying to order’ it will be very difficult indeed to demonstrate that you’re not trading.

That brings me to an end of my review of the nine badges of trade. As always, do get in touch to share your experiences .