First tier tribunal denies shoot loss relief to estate owner

In May, the First Tier Tribunal (FTT) delivered its decision in the case of Charlotte MacDonald v HMRC [2025] UKFTT 495 (TC), addressing the eligibility of loss relief claims under the Income Tax Act 2007 (ITA).

Charlotte MacDonald (Charlotte) owned a typical mixed arable and grazing land estate with woodland and residential let properties as well as a biomass boiler. The arable land was let on a Farm Business Tenancy (FBT) and the grazing land on grazing tenancies. Charlotte ran a shoot over the estate which operated over the woodland and farmland over five months of the year. Therefore, there were effectively three income streams – the shoot, biomass boiler and rental income.

Charlotte was actively involved in the shoot, attended and hosted the shoot days and was responsible for safety, positions of the guns on each drive, hospitality and she manged the bookings and arranged catering. Charlotte employed a Head Keeper who maintained the estate and filled the biomass boiler, which provided heating to two of the rental properties. On the shoot days he co-ordinated the beaters and planned the drives. He was also responsible for the rearing and release of birds, vermin control, tree management and security.

The shooting enterprise generated tax losses for the years 2017 to 2021, which Charlotte set against her general income (i.e. biomass and rental profits) through sideways loss relief. HMRC challenged these claims, arguing that the shoot was not operated on a commercial basis with a view to profit.

The ITA imposes restrictions to loss relief claims, stipulating that relief is only available if the trade is conducted:

• On a commercial basis; and
• With a view to the realisation of profits.

Both conditions must be satisfied for relief to apply.

The Tribunal acknowledged that the shoot was conducted on a commercial basis. Evidence showed that Charlotte actively managed the shoot, employed staff, maintained budgets, and sought to increase turnover, which had risen by approximately £50,000 in recent years. However, the Tribunal found that the shoot was not carried on with a genuine intention to make a profit. Despite efforts, the shoot had incurred losses in nearly every year since 2005, totalling over £750,000, with only one year showing a profit. The Tribunal noted that, for a commercial venture, especially one which was struggling to realise a profit, it would be reasonable to expect to see business plans, budget projections, notes of meetings and of plans to improve profitability. They concluded that there was no reasonable expectation that the shoot would become profitable, and thus, the subjective element of the commerciality test was not met.

Additionally, and most interestingly, Charlotte argued that the shoot was part of a larger undertaking, integral to the estate’s operations, so profitability should be considered in that context under Section 66(4). Where a trade forms part of a larger undertaking, when considering whether there is an expectation of profits, Section 66 (4) allows the commercial profit test to be read as references to profits of the larger undertaking, not just the individual trade. When taken as a whole, (the shoot, biomass and rentals) the larger undertaking, net of the shoot loss, made profits.

Charlotte argued that the income from the shoot and rentals would be diminished without the existence of the other, or the costs associated with each would increase without the other. She maintained that the presence of the Head Keeper assisted with the level of rents on the land due to the vermin control and maintenance carried out because of the shoot. Further that the shoot could not take place anywhere other than on the woodland and farmland of the estate – i.e. both are required for either to function.

However, whilst the Tribunal agreed the shoot was part of a larger undertaking, carried on on a commercial basis and that the activities were interlaced and interconnected, being managed together, with staff working across all the properties used in the activities, the Tribunal rejected this claim. They determined that the shoot should be viewed on its own and whilst the various activities may share the same location, the shoot and rents are not sufficiently interconnected or dependant on each other. They found that there was not a single trade but that each activity could operate without the other – i.e. the residential and farm tenancies could exist without the shoot and indeed did during the Covid pandemic. Neither activity is reliant on the other and neither enhances the profitability of the other.

The Tribunal upheld HMRC’s assessments to disallow the sideways loss relief claims. The case reminds us of the importance of demonstrating both the commercial nature of the trade and a genuine profit motive when claiming loss relief. Numerical budgets and plans for profitability are crucial, particularly where the activities are currently loss making. Further, that to argue the profit test should be based on the profits of a single larger undertaking, will require significant evidence to show that the individual activities could not operate on their own and without the others. Therefore, for estate or farm owners considering diversification projects, consider how this might be evidenced in business plans, particularly if losses are expected for an initial start-up period.