Court Cases involving Financial Traders


An activity of buying and selling shares and other financial instruments undertaken by an individual will normally amount to investment (or speculation falling short of trading), unless there are factors which take the case ‘out of the norm’ (see BIM56850).

As cryptoassets are taxed in the same way as shares, we can rely on the guidance regarding share traders. This means that cryptoasset disposals are most likely subject to the capital gains tax regime, rather than being treated as a ‘financial trading’ business which would be subject to income tax and national insurance.

The cases below demonstrate that HMRC strongly content claims that buying and selling shares are a ‘financial trading' business. The contest it in order to deny tax relief for tading losses. HMRC may either make a case that the taxpayer is not a trader, or that they are a trader, but they are not trading on a commercial basis with a view to making a profit. The consequence is that the trading loss cannot be offset against other income; it can only be carried forwards against profits of the same trade.

Four cases where such share activities have been considered are:

In Salt v Chamberlain, it was held that all share transactions are capital in their nature unless they are undertaken by a properly registered share dealer. Therefore, if a private individual (not a share dealer) bought and sold shares many times, it is thought he could never have the Badges pinned on to those transactions. Such profits would be taxable as capital gains. Therefore, an individual casually dealing in shares could not set any resulting losses against income, even if the activity constituted trading.

Despite this seemingly definitive case, taxpayers continue to test the principle with reference to the other Badges of Trade. For example, in Manzur, the taxpayer failed to convince the Court that his share dealing was a trade.

It can been seen that the decision in Wannell v Rothwell was borderline and although it was decided as trading, the position was far from clear cut. He was not considered to be ‘trading on a commercial basis’ and therefore he was not permitted to offset his losses against other income.

However, in Akhtar Ali v HMRC, it was held that buying and selling shares constituted a trade on a commercial basis, mainly on the basis that the individual taxpayer had bought the shares with the intention of selling them at a profit. He was permitted to offset his losses against other income. The tribunal stressed that the following factors pointed towards a trading activity; the short length of ownership and high frequency of similar transactions, the circumstances that were responsible for the realisation, the profit motive and the fact that the activity was carried out in a sufficiently organised manner.

Salt v Chamberlain – not trading

It was found that Mr Salt was not trading by the Commissioners and then upheld by the High Court.

Mr Salt was a mathematics graduate who used his knowledge of computers to forecast the movements in share prices. In the period 11 December 1968 - 31 March 1973 he entered into approximately 200 transactions for the purchase and sale of securities, which included put and call options and settlements at the end of an account for balances only. He used his own funds as well as borrowings from the bank and against life assurance policies.

Manzur – not trading

Mr Manzur was a retired surgeon. He used his own savings to begin acquiring stocks and shares. He made between 240 and 300 trades in a year using an online stockbroker. Some of the shares were turned over very quickly but others were retained for six months or more.

The tribunal held that Mr Manzur’s buying and selling amounted to the management of a portfolio of investments rather than trading. They upheld the view in Salt v Chamberlain that the badges of trade were of limited value and said there was no definitive checklist which could be used to say whether someone was trading or not.

The number and frequency of transactions, and the short-term nature of the holdings alone did not establish trading. Other factors taken into account were:

  • the time spent on the activity (about two hours a day);

  • the fact that Mr Manzur did not entirely rely on his own expertise but used the advice of brokers;

  • that the activities were not characteristic of established share dealers, for example Mr Manzur had no customers and was dependent on market movements alone to make a profit.

Wannell v Rothwell – was trading (borderline), but not on a commercial basis

Mr Wannell had previously worked for a commodity futures dealer as a trader prior to the commencement of his activity. His duties had included advising clients on long-term investments and short-term trading opportunities in commodity futures and options. He had obtained qualifications relevant to his duties and, in the course of his own activity, had access to market reports and analysis but not a full screen service. All the transactions were placed with a broker. There were 11 purchases and sales of commodities between May and October 1986 and 46 purchases and 49 sales of shares between October 1985 and August 1987. He dealt on his own account and there were no customers.

The Deputy Special Commissioner said:

‘The essential point in the present case is that of organisation. Was the Appellant, doing two or three deals a month from home through brokers, but doing them with the benefit of experience, training and contacts which he had, organised in a way that a trader could be said to be organised? The case is very close to the borderline, and if the only question I had to decide were whether the Appellant was trading, I might be inclined to give him the benefit of the doubt and find that he fell, by a hair’s breadth, on the trading side of the dividing line.’

This case considered not only the question of whether Mr Wannell was trading but whether he was trading commercially for the purposes of relief for losses (see BIM85705), and the Deputy Special Commissioner concluded that:

‘a case which is so close to the trading borderline because of its lack of commercial organisation is bound to be on the wrong side of the [loss relief] borderline.’

When this case came before the High Court, Robert Walker J found that the Deputy Special Commissioner must be taken to have found that Mr Wannell was trading, but also that he had had sufficient evidence before him to come to the conclusion that the activity was not carried on commercially, so the losses could not be set off against general income. There is more information on losses in this context at BIM85705.

Akhtar Ali - trading

It was held that buying and selling shares constituted a trade on a commercial basis, mainly on the basis that the individual taxpayer had bought the shares with the intention of selling them at a profit.

The appellant bought and sold publicly listed shares in significant volumes with the intent of making a profit based on short term movements in the price of the shares. He held the shares for short periods of time. The volume of his share transactions waxed and waned over the tax years in question but throughout these years he was engaged in an endeavour to make money from short term dealing in shares (another word for which, as used in the case law discussed below, is “speculation” in shares).

The total number of transactions carried out by the appellant in six of the seven tax years in question was as follows:


Weekly (average)

Daily (average)

























Whether this endeavour yielded profit or loss over a tax year was entirely dependent on the appellant's success in anticipating short term movements in the prices of shares – the appellant did not, in the tax years in question, undertake “hedging” transactions which could have counterbalanced the effect of other transactions he was undertaking.

The appellant was self-taught in this field. He had experience of buying and selling shares going back to the 1990s, and in 2000 he made a considerable profit. He conducted regular research into the stock market. His research and experience informed his strategies for profiting from short term movements in the price of shares. He had never worked for a financial institution and had no formal qualifications or regulatory permissions relating to his share activities (and none were required).

The appellant conducted his share activity with minimal expense and formality. He carried it on alongside his pharmacy business, spending up to 40 hours a week on his share activities when he was hiring locums for the pharmacy. He engaged no staff or outside consultants for his share activity. He used an office above the pharmacy. He had no written business plan, drew up no separate accounts, and had no formal process to review the performance of his share activities.

The appellant continued his share activities, despite making overall losses in each of the seven tax years in question, because he believed he was all the time getting better at anticipating short-term price movements, and so would generate net profits. The appellant funded his share activity himself, from what he called his “riskable funds”. This meant that he could sustain the losses he incurred in the tax years in question – but there was an upper limit on the money he was prepared to put into the endeavour, as he did not want to put at risk certain key personal assets such as his pharmacy business, his pension, and certain long term investments.

The FTT’s starting point was that Mr Ali’s activities bore classic hallmarks of ‘trading’. Over an extended period of time, he had bought assets with the intention of selling them on at a profit. Furthermore, four of the badges of trade (the length of the period of ownership, the frequency of similar transactions, the circumstances that were responsible for the realisation, and motive) pointed firmly towards trading.

However, Salt v Chamberlain [1979] STC 750 was authority for the proposition that the activity of speculating in shares can look like trading and yet not constitute a trade, because it really consists of ‘gambling’. The FTT noted that Mr Ali was self-funded, so that he had no external stakeholders and could engage in gambling transactions if he so chose. However, his business plan (although unsophisticated) and the fact that he pursued it in a sufficiently organised manner pointed away from gambling. Mr Ali had therefore been trading. Similarly, the fact that his endeavour had been unsuccessful did not make it uncommercial and it was clear that he had aimed to profit.

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