Marson v Morton [1986] STC 463

Facts

  • The case concerned the classification of a transaction as either trading or capital investment for tax purposes.
  • The transaction involved the sale of a single potato futures contract.
  • The asset was held for a short period, and there had been no previous similar transactions by the parties.
  • No changes were made to the asset to increase its value before sale.
  • The purpose behind purchasing and selling the asset was profit, but the sale was unplanned.
  • The facts in Marson v Morton differed from other cases where multiple or development-focused transactions were held to be trading.

Issues

  1. Whether the transaction involving the sale of the potato futures contract was a trading transaction or a capital investment for tax purposes.
  2. What factors should be considered in distinguishing between trading and capital transactions in similar cases.

Decision

  • The High Court held the transaction was a capital investment rather than a trading transaction.
  • Key factors included the nature of the asset, short ownership period, lack of similar previous transactions, absence of efforts to increase value, unplanned sale, and the purpose of the transaction.
  • The court concluded that profit motive alone does not determine classification; the wider factual context must be considered.
  • The single, speculative nature of the transaction without trading features weighed against classifying it as trading.

Legal Principles

  • Classification depends on multiple factors: asset type, period of ownership, frequency of similar transactions, efforts to increase value, reasons for sale, and purpose.
  • Assets typically held for growth (land, shares) suggest investment; assets bought for resale indicate trading.
  • Isolated transactions are more likely to be capital investments; repeated, similar deals support trading.
  • Alterations to increase value and intention to sell point toward trading; sales caused by unforeseen events, even if profitable, may be investment.
  • Profit motive is relevant but not determinative; factual context is essential.
  • Precedent cases illustrate distinctions: Rutledge v CIR (large, trade-like single sale), Wisdom v Chamberlain (short-term, transactions funded with borrowed capital as trading), and Taylor v Good (development efforts leading to trading classification).

Conclusion

Marson v Morton establishes a structured, multi-factor approach for distinguishing trading from capital investments in UK tax law, requiring consideration of all relevant facts beyond profit motivation to ensure correct tax treatment.

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