Marson v Morton, [1986] STC 463

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Henry, a retired teacher, purchased a parcel of farmland on the outskirts of his hometown. He initially planned to cultivate the land for personal leisure and preserve its natural scenery. However, six months later, he received an unsolicited high offer from a developer and decided to sell the land. During that period, Henry made minimal alterations to the property, only adding a basic fence for security. He has never engaged in similar transactions involving farmland or other real property in the past.


Which factor is the best indicator that Henry’s farmland disposal is a capital investment rather than a trading transaction?

Introduction

The difference between a trading transaction and a capital investment affects tax outcomes. Marson v Morton [1986] STC 463 provides clear criteria for making this distinction. This High Court case lists specific points to consider when classifying a transaction. These include the asset type, how long it was owned, how often similar actions occurred, changes made to the asset, reasons for selling, and purpose. Proper use of these points helps separate business income from gains due to asset value increases. The decision sets out a structured way to address the challenge of telling these activities apart.

The Subject Matter of the Sale

The type of asset gives initial clues. Assets usually held for long-term growth, such as land or shares, often point to capital investment. Assets bought for quick resale, like goods, suggest trading. In Marson v Morton, the asset was a single potato futures contract, more aligned with short-term speculation than ongoing business.

Time the Asset Was Held

How long the asset was kept matters. Short ownership periods may indicate aiming to profit from price changes, common in trading. Long ownership aligns with growth-focused investment. The potato futures in Marson v Morton were held briefly, but this alone did not confirm trading.

Number of Similar Deals

Repeating transactions with similar assets support trading. Single transactions are more likely capital investments. The absence of past potato futures deals by the parties in Marson v Morton supported viewing it as a one-time investment.

Extra Efforts and Reasons for Sale

Changes to raise an asset’s value (e.g., development) indicate trading. The reason for selling also matters. Selling due to unforeseen events may point to a capital gain, even if profit was intended. In Marson v Morton, no changes and unplanned sale timing helped classify it as a capital investment.

The Purpose Behind the Action

Purpose matters but is not final. Profit goals exist in both trading and investing. Other factors must align with the purpose. The court in Marson v Morton acknowledged the profit aim but found the broader facts favored capital investment. This shows purpose must match factual details.

Comparing Marson v Morton to Trading Cases

Other rulings show differences, highlighting Marson v Morton’s approach. In Rutledge v CIR (1929) 14 TC 490, selling a large toilet paper batch was seen as trading due to size and asset type. In Wisdom v Chamberlain (Inspector of Taxes) [1969] 1 WLR 275, short-term silver buys with loans were treated as trading. These differ from Marson v Morton’s single deal without trading signs. Taylor v Good (HM Inspector of Taxes) [1974] STC 148 involved land development; work to add value led to trading classification.

Conclusion

Marson v Morton offers a clear method to distinguish trading from capital investments in UK tax law. The case stresses checking multiple points beyond profit goals. Asset type, ownership length, deal frequency, changes, sale reasons, and purpose together aid classification. Using these points with similar cases ensures accurate tax results. This structured approach clarifies the line between trading and investments. The principles from Marson v Morton remain key to resolving this central tax issue.

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