In the one-year window that decided the case, the company earned nothing except rent: roughly £468,000 of it. The tribunal went further and held that the larger stream, some £324,000 from a legacy long lease, was long-term investment income, squarely non-trading. Then it allowed Entrepreneurs' Relief to all four shareholders anyway.

Pontin v HMRC ([2026] UKFTT 1166 (TC), released 13 August 2026) matters for anyone advising on Business Asset Disposal Relief today, because the definition it applies is the one BADR still uses: a company falls out of "trading" where its activities include non-trading activities "to a substantial extent". The decision is a working demonstration of how tribunals actually weigh that question, and it is far more instructive than the simple version of the story, precisely because the taxpayers won with a set of facts that looks, on an income statement, unwinnable.

The case rewards a careful read for a second reason. What carried it was not one killer document but an accumulation: contemporaneous accounts, unchallenged witness evidence, a costs analysis, and leases whose awkward terms turned out to be the company's best argument.

APUK, the operating subsidiary of Highland Holdings, owned Highlands Farm: 83 acres outside Henley-on-Thames, complete with an SSSI and a scheduled monument. In April 2011 its directors decided to pursue residential development, and the financial statements drawn up that October recorded the pivot in language that mattered fifteen years later: the directors had "decided to actively seek planning permission... with a view to demolishing the existing property and replacing it with a residential development", and the property "has been moved from being a fixed asset investment property to trading stock". The accounts kept describing development as the principal activity, rent as ancillary, through to the 2015 statements.

What followed was the unglamorous middle of property development: a near ten-year planning promotion, a challenge to the local Core Strategy, heritage and SSSI defences, clearance and site works, buried bitumen barrels and asbestos out, and a long campaign for a Neighbourhood Plan allocation of around 170 dwellings, which passed at referendum in March 2016 and was confirmed that April. One director attended at least eleven lobbying events in March 2015 alone. The shareholders sold through an option exercised on 22 April 2016, which fixed the relevant one-year period, under the law as it then stood, at 22 April 2015 to 22 April 2016.

Throughout that year no houses were built and none were sold. The income was rent, from two very different sources, and what the tribunal did with the difference is the heart of the case.

Section 165A(3) removes trading-company status where activities "include to a substantial extent activities other than trading activities". Practitioners often reach for a 20% rule of thumb from HMRC's manuals. The tribunal applied the Upper Tribunal's Allam formulation instead, and quoted its rejection of arithmetic shortcuts in terms: it is "not appropriate to apply any sort of numerical threshold as suggested by HMRC's guidance". The question is whether non-trading activities were "of material or real importance in the context of the activities of the company as a whole", assessed qualitatively and quantitatively across what people did, where income came from, how capital was employed and how time was spent. The tribunal still computed percentages along the way, including a detailed expenditure analysis; it declined to let any one of them decide the case.

One point the case did not need to establish, because the statute already does: activities carried on "for the purposes of a trade that it is preparing to carry on", or "with a view to... starting to carry on a trade", are trading activities under s.165A(4). HMRC's opening position disputed that APUK's activities qualified at all; during the hearing it abandoned that argument and accepted the company was carrying on activities with a view to starting a trade. The decision records the retreat without explaining it (¶6), and it is worth being precise about its limits: HMRC never accepted an actual trade existed in the relevant period, and the tribunal decided the appeal on that narrower agreed footing (¶117).

The roughly £144,000 from short-term tenancies attracted the finding advisers will quote for years. The lets were deliberately short and terminable, partly because the option agreement signed with the developer in 2012 required the property to be kept ready; they covered holding costs, reduced rates, and kept the site occupied and the town on side ahead of the referendum. On that footing the income was "integral to APUK's preparations to trade and should not count against APUK" (¶102). Purpose, not category, decided its character.

The £324,000 stream from the legacy lease received the opposite finding: it "cannot be regarded as generating anything other than long-term investment income" (¶103). On the simple version of the trading test, that should have been fatal; it was most of the company's income. The tribunal weighed it lightly for two connected reasons (¶108–109): the stream was a legacy arrangement being terminated by the very disposal under appeal, and the mischief the statute aims at, investment value sheltering inside a trading company's relief, was absent. Legacy investment income counts less where the transaction itself is switching it off.

The paragraph to cite in the next enquiry sits at ¶108–109: the explanation of why £324,000 of admitted investment income did not sink the claim.

Strip the case to its skeleton and the tribunal's own concluding factors (¶129) tell the story. No single document carried the day; an accumulation did.

The 2011 change of direction was an agreed fact by the time of the hearing, evidenced through the accounts narrative and the reclassification of the property to trading stock. The accounts corroborated rather than proved the case, and one caution for anyone retelling it: the decision mentions no board minute; the visible record was the published accounts, consistent from 2011 through 2015.

Unchallenged witness evidence from three witnesses, a director handling the site, the family member driving the Neighbourhood Plan campaign, and the planning consultant who ran the near ten-year promotion, mapped where the effort went. The tribunal found that one director ran all the administration of the letting side "in, on average, a day a month" (¶95); his own evidence put the financial side alone at no more than the equivalent of ten full days a year (¶32), with tenant-facing work and repairs sitting with others in the wider group (¶34 to ¶35). The management charge itself was split 85 per cent development to 15 per cent rental for the three years to October 2015, having been 75/25 in 2012 (¶50). The tribunal also did real cost work, and it is worth reading carefully because the direction runs the taxpayer's way. Looking at expenditure other than business rates and the management fee, it found that around 35 per cent was fees directly linked to property development (¶127). It then made the assumption least favourable to the company, treating all the remainder as non-trading cost, which produced £58,000 of non-trading expenditure for the year. Adding the management fee back on its 85/15 split gave totals of £88,675 non-trading against £204,954 trading (¶128). A further point, drawn from Stolkin, is independently useful to advisers: work bought in from consultants and recharged from group companies counts toward the company's own activities (¶93).

The tribunal found the company's predominant intention for the property was residential development, resting on witness evidence it accepted without challenge (¶120). It declined to resolve counsel's neat binary that an asset "must be either trading stock or an investment asset"; it asked instead whether the property was held with a view to use in the trade the company was preparing (¶118–120). And it allowed itself to notice how the story ended: a development that had produced, by late 2024, more than £25m of profit for the eventual trade, on the director's unchallenged figures roughly £82.5m of cumulative income at 75 per cent completion.

The relief has changed name, and one change matters directly: since 6 April 2019 the qualifying conditions must be met throughout the two years ending with the disposal. Pontin examined a one-year window because its facts predate the change; a sale being negotiated this autumn is already deep inside its two-year window, and the evidence that matters is being created, or not, right now.

Three client profiles should prompt a file review. The property group inching toward development while collecting rent: its accounts should say so, in the Pontin manner, and its leases should serve the plan. The trading company with a legacy investment stream: ¶108–109 is the argument that its weight depends on context, strongest where the stream is being wound down. And the company with a growing cash pile: the Allam factors, applied honestly across activity, income, capital and time, tell you which side of "material or real importance" it sits on.

Questions of this kind, what "substantial" means this year, which authorities a tribunal will actually apply, how the two-year window changes a transaction timetable, are research questions with precise, citable answers. That is the work AI tax research is built for: the statute, the current authority and the paragraph reference in one pass, with reliability published on our benchmark and provenance rules in our sources and update policy. For how to evaluate any tool against fast-moving case law, our pillar guide to choosing AI tax research software sets out the criteria.

Pontin is the rare case that gets stronger the more precisely it is told. A company whose only income was rent, most of it judicially labelled investment income, kept its trading status because a tribunal weighed a decade of documented development effort against a legacy stream the sale itself was ending, and found the non-trading side wanting in real importance. For advisers the takeaways are practical: purpose can redeem income the ledger condemns, "substantial" is weighed rather than measured, the two-year BADR window means the weighing starts earlier than clients think, and the record that persuades a tribunal is assembled years in advance by people who knew what their company was for.

To put cited authority behind your next trading-status review, create a GAIN Tax account; more case analysis is on the GAIN Tax blog.

What did Pontin v HMRC decide? The FTT allowed Entrepreneurs' Relief on the 2016 sale of Highland Holdings, finding that its subsidiary APUK's activities did not include non-trading activities to a substantial extent, even though the year's only income was rent and £324,000 of it was held to be long-term investment income. All four shareholders' appeals were allowed.

Why did the investment rent not disqualify the company? The tribunal weighed it in context: the stream was a legacy arrangement being terminated by the disposal itself, the statutory mischief of sheltered investment value was absent, and the company's activity, expenditure and intention all pointed at the development trade it was preparing (¶108–109, ¶129).

Does the 20% non-trading benchmark still apply? The tribunal applied Allam, which states in terms that a numerical threshold from HMRC guidance is not the test. It computed percentages as inputs, including a 35/65 expenditure split, and weighed them; none decided the case alone.

Is this binding for BADR cases? It is a First-tier decision, so persuasive rather than binding, whatever happens to the appeal window, which runs to around 8 October 2026. The s.165A trading definition it applies is the one BADR uses today.

What changed between Pontin's facts and current BADR? Chiefly the window: from 6 April 2019 the qualifying conditions must hold throughout the two years ending with the disposal, against one year on Pontin's facts, and the lifetime limit has moved. The trading-company definition itself is unchanged.

What evidence mattered most? The accumulation: the 2011–2015 accounts narrative and trading-stock reclassification, unchallenged witness evidence on intention and effort, the expenditure analysis, and lease terms tied to the development timetable through the 2012 option agreement. The decision mentions no board minute; the published record and the witnesses told the story together.