Alan Pontin & Ors v HMRC [2026] UKFTT 1166 (TC) is a taxpayer win on the old entrepreneurs’ relief rules — and a live control note for anyone still running Business Asset Disposal Relief (BADR) on property, holdco or development exits. The First-tier Tribunal allowed the appeals. A family holdco that owned a single property company still counted as the holding company of a trading group even though the site kept throwing off rent while the directors chased residential planning.
That is the CFO problem in one line. HMRC will often accept that you are “preparing to trade” and still try to kill relief on the second limb: activities that include, to a substantial extent, things other than trading. In Pontin, the non-trading story was continued leasing. After a full Allam-style multifactorial review, the tribunal held those rental activities were not of material or real importance in context. Relief stood.
Primary sources: the FTT judgment, Claritax’s case note, Academy of Tax Law’s summary, s.165A TCGA 1992, s.28 TCGA on option timing, GOV.UK Business Asset Disposal Relief, HMRC’s CG manual trading company material, Allam v HMRC [2021] UKUT 291 (TCC), and ICAEW’s CGT technical hub.
What was actually in dispute
Four appellants each sold shares in Highland Holdings Limited (HHL) on 2 June 2016 after Crest Nicholson exercised an option on 22 April 2016. HHL’s only asset was Associated Properties UK Limited (APUK), which owned a business and industrial site in Henley-on-Thames. Each seller claimed entrepreneurs’ relief on the share gain.
It was common ground that the claims succeeded if HHL was the holding company of a trading group throughout the one-year “Relevant Period” ending on disposal. That reduced to one question: was APUK a “trading company” under s.165A(3) TCGA 1992 throughout that year?
Section 165A(3) has two limbs. A trading company must carry on trading activities, and its activities must not include to a substantial extent activities other than trading. “Trading activities” expressly include activities for a trade the company is preparing to carry on, and activities with a view to starting a trade as soon as reasonably practicable (s.165A(4)–(5)).
HMRC started with both limbs. At the hearing it abandoned the first and accepted APUK was preparing to trade and started that trade as soon as reasonably practicable. The fight narrowed to substantiality of non-trading activity — mainly continued leasing and tenant management during the year to option exercise. Because disposal was under a contract that became unconditional on option exercise, s.28 TCGA fixed disposal at 22 April 2016. The Relevant Period ran roughly April 2015 to April 2016. For modern BADR exits with options, put/call structures or deferred completion, that same clock still bites.
The commercial story the tribunal accepted
APUK’s site had a long investment history, including a 16-year Aggregate Industries lease and pre-emption that locked the asset into debt service. By 2011 the directors judged the complex finished as long-term industrial/office stock, pivoted to residential development and reclassified the property to trading stock. In October 2012 they granted Crest Nicholson options over the HHL shares, conditioned on planning, with value architecture around £25m once permission landed. Operating posture shifted: minimal capex, short-notice lettings, site clean-up, planning and Neighbourhood Plan work, and careful tenant handling ahead of a local referendum.
By 2015–16 the site was heading for allocation of around 170 homes. Crest applied for planning in July 2015; the referendum approved the plan in March 2016; the option was exercised in April and completion followed in June. Aggregate Industries had vacated in 2011; remaining occupation was mostly small, short-notice lets that reduced rates and covered costs. Landlord admin was about ten full days a year for the finance-side director. Witnesses were found credible.
How the tribunal applied Allam
Following Allam, the FTT refused any single-percentage shortcut. It assessed physical activity, income, assets and expenditure — qualitative and quantitative — and asked whether non-trading activity was of material or real importance in the context of APUK’s activities as a whole during the Relevant Period.
On physical activity, a very significant part of management time went to development — planning, lobbying, Neighbourhood Plan work, option conditions, consultants and site preparation. Tenant work was real but light. “Some landlord activity exists” was not enough for HMRC.
On income, the tribunal split the rent. Legacy Aggregate Industries income was still present but being ended before the share sale. Short-term lettings were integral to the development plan: they covered costs, held down empty rates, used terms that would not hinder redevelopment, and avoided hostile optics before the referendum. Not all rent is “investment activity” if the lease book is a managed bridge into a trade already in preparation.
On assets, the property — APUK’s only meaningful asset — was held predominantly for redevelopment and sale in the course of trade. Reclassification to stock in 2011 and the Crest structure supported that; HMRC’s “cannot be trading stock before trade starts” argument failed. On expenditure, a crude ~£58k non-trading cut of a narrow cost pool was incomplete, likely overstated and immaterial against development resource. Standing back, non-trading activities were not of material or real importance. APUK stayed a trading company; HHL stayed the holding company of a trading group. Appeals allowed.
ER then, BADR now — what still transfers
The disposal year was 2016, under entrepreneurs’ relief. The relief has since been renamed and reshaped as Business Asset Disposal Relief, with a lower lifetime limit and the familiar personal-company conditions. Do not paste 2016 economics into a 2026 model.
What transfers is the company test architecture. BADR still needs a trading company or holding company of a trading group for the required period. HMRC still leans on “substantial” non-trading activity — investment property, surplus cash, related-party lettings, or a slow pivot that never leaves the investment posture. Pontin confirms that preparing-to-trade can be accepted while substantiality is litigated; bridge lettings are not automatically fatal if dominant activity and asset intention are development/trade; bare percentages are a weak substitute for the multifactorial test; and board minutes, reclassifications, option agreements, planning files and tenant-exit plans are evidence, not decoration. For PE and family-office exits — propco/opco splits, land-promoted SPVs, “investment until planning” holdcos — the Pontin file is the diligence standard, not a one-line memo that “we intend to develop”.
What CFOs should lock before the next exit paper
1. Separate the two limbs in every IC/tax paper. “We are preparing to trade” is necessary, not sufficient. Force advisers to answer substantiality with evidence on time, money, assets and income — in the qualifying period that actually applies, including option exercise dates under s.28.
2. Build a contemporaneous trading file. Reclassification to stock, planning applications, promoter/option docs, local-plan work, site investigation, contamination clear-out and a written tenant-exit strategy all mattered in Pontin. Retro-fitted narratives after HMRC opens are weaker and more expensive.
3. Characterise rent properly. Map each income stream as legacy investment, bridge letting integral to development, or genuine continuing investment business. Short notice, no capex, rates mitigation and development-compatible terms helped the appellants. Long new institutional leases with fit-out spend would have told the opposite story.
4. Do not outsource substantiality to a spreadsheet percentage. HMRC likes neat non-trading percentages. Tribunals after Allam do not. Keep the quantitative pack, but put board time, physical activity and commercial trajectory next to it. If 80% of director hours are planning and 5% are rent chasing, write that down with diaries and invoices.
5. Align SPA warranties and funds flow with residual risk. Even a strong Pontin-style fact pattern can attract enquiry. Price holdbacks, tax insurance and seller indemnities against a full BADR clawback. For PE, make sure management rollover and sweet-equity papers do not assume relief the trading test cannot carry.
6. Watch mixed groups and the full BADR checklist. Pontin was a clean single-asset stack. Add treasury companies, unrelated investment property or material non-trading subsidiaries and the holding-company analysis changes. Diligence the whole group perimeter for the qualifying period. Separately diary personal-company status, employment/office-holder rules, holding periods and lifetime limits — winning substantiality and losing on a 5% ordinary share/voting condition is still a full miss.
Bottom line
Pontin does not mean “keep collecting rent and claim trading status”. It means HMRC cannot treat residual or bridge letting as automatically “substantial” where the dominant activity, asset intention and resource story are a real development trade in preparation. The tribunal preferred commercial substance over a landlord label.
For CFOs running exits, earn-outs, MIP crystallisations or family-company sales with property in the stack, the action is mechanical: lock the qualifying period to the real disposal date; build the multifactorial file now; characterise every rental stream; and stop signing IC tax pages that only recite intention. Soft evidence loses. Hard contemporaneous evidence — the kind that survived cross-examination in Pontin — is what keeps BADR on the completion statement.
One-line board instruction: treat “substantial non-trading” as a diligence workstream with owners and documents — not a footnote under “ER/BADR available”.