UK: Amortization deductions denied under related-party rules; trading had not commenced for purposes of EIS (court decisions)
Recent decisions of Court of Appeal and Upper Tribunal
The Court of Appeal in Muller UK and Ireland Group LLP & Ors v Commissioners for His Majesty's Revenue and Customs [2026] EWCA Civ 248 (11 March 2026 upheld the previous decisions of the First-tier Tribunal and the Upper Tribunal and found that corporate partners of a limited liability partnership (LLP) were not entitled to amortization deductions with respect to intangible assets that had been acquired by the LLP from the corporate partners because the LLP would not have been entitled to such deductions if it were a corporation under corporate income tax rules disallowing amortization deductions on assets acquired from related parties.
Although the “deeming provisions” were silent as to whether those related-party rules apply in the context of determining a corporate partner’s share of LLP income or loss, the court found that it was appropriate to apply the related-party rules under the facts of the case.
Read a March 2026 report prepared by the KPMG member firm in the UK
In addition, the Upper Tribunal in Putney Power Limited v HMRC [2026] UKUT 105 (TCC) held that an electricity generating business had not commenced trading by the relevant date for purposes of applying the enterprise investment scheme (EIS). The business had not fully set up its infrastructure, and although the business had entered into contracts with customers, the court concluded under the particular facts that such activity was preparatory in nature and not actually trading.
Unlike the lower court, however, the court did not think this conclusion followed as a matter of law, acknowledging that there may be circumstances when a company may be treated as trading before the infrastructure is fully set up. The court also stressed that determining the precise date on which trade commences is a factual question, and earlier case law may provide important examples of factors, but it does not establish binding legal principles that could govern the answer to the factual question.
Read a March 2026 report prepared by the KPMG member firm in the UK