The definition of trading

Trade is defined in ITA 2007, s 989, as including "any venture in the nature of trade".

The interpretation of 'trade' has been left to the courts, which have developed a number of tests, known as the 'badges of trade', to determine whether an activity is trading or investment in nature. Please note that the definition of trade for income and corporation tax purposes is different from the definition of trading for CGT and IHT - for more on, this see the Entrepreneurs' relief guidance note.

For individuals, the distinction is more important than ever because of the large difference between the top rate of income tax (45%) and CGT for high earners (20% or 28% for 2016/17 onwards depending on the type of asset subject to disposal).

The badges of trade

The badges of trade are:

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