Balfour and Macdonald: Clarifying the rules on loss relief

In May 2025 a decision was published by the first-tier tribunal on Charlotte Macdonald v HMRC [2025] regarding income tax relief on a small estate in Derbyshire. This is the most recent in a line of decisions around trade and loss relief for landed estates.

Case overview

Macdonald v HMRC

The Macdonald case concerned a small landed estate in Derbyshire operating a shoot trade and letting of farmland and residential properties. The shoot consistently generated losses between 2017 and 2021 in enough quantity to return net losses for each year in question. HMRC argued the shoot trade was not carried out on a commercial basis. They also argued the activities of the estate were not one business but multiple businesses that shared a location. They claimed the shoot losses were not available for relief.

The first-tier tribunal found the shoot trade was linked to the estate’s operations and was run on a commercial basis. However, not with a reasonable expectation to profit. Sideways loss relief was denied to the taxpayer.

Brander v HMRC

Consideration as to whether the shoot was part of a larger undertaking was referenced to in Brander v HMRC (known as the Balfour case). Although it was an inheritance tax case, Balfour examined whether the business of a Scottish landed estate constituted one trade or multiple trades. The judge found in favour of the taxpayer that the estate was in fact, one business. HMRC appealed to the upper tribunal but were unsuccessful.

Both Macdonald and Brander boil down to an older decision, Scales v Thompson [1927], concerning a business of shipping and underwriting. Scales tried, and failed, to argue that the two areas of the business were one trade. The tribunal ruled that they were separate trades as if the underwriting business ceased, the shipping business would be unaffected and vice versa. Since this, including both Brander and Macdonald, a way of viewing whether there is one business or two has been, would the stopping of one section of the business negatively impact the other parts of the business?

Macdonald found that the shoot did not affect the letting of the farmland on farm business tenancies or grazing licences. If the shoot ceased the farmers wouldn’t be affected by the loss. Similarly, the farming could cease, and the shoot wouldn’t suffer either.

Brander found at the first tier and upper tribunal that the running of the estate, comprised of in hand farming, commercial woodland and letting activities, constituted ‘one business’. There is no distinguishment between business and trade in Brander and they are used interchangeably.

Why the Macdonald case matters?

The Macdonald case potentially sets the scene not just for landed estates, but for all businesses. It highlights situations where one element may be less profitable but remains essential to the overall operation.

Additionally, whether there is one business or two can significantly impact business property relief. If activities are treated as separate, non-qualifying elements may trigger unexpected inheritance tax liabilities.

Its seems that landowners and other businesses are facing increased tax costs with restrictions on loss reliefs and the proposed changes to inheritance tax relief announced in the Budget 2024.

The above is a very thumbnail summary of a complex and subjective area. We’re here to help if you’re concerned about loss relief or business property relief for your business or landed estate.