Property investment or trading?

Produced by Tolley in association with of Crane Dale Tax

Owner-Managed Businesses

Guidance

Outline of property investment vs trading

This guidance note applies to both individuals and companies.

The distinction between income and capital profits is crucial to many areas of tax law and is a common issue for property transactions. Often it will be quite clear cut as to whether the activity is trading or investing in land. A person buying property to let out long term will be making a property investment, whereas someone buying a property to refurbish and sell (’flipping’) will most likely be trading as a property dealer or property developer. However, where is the line to be drawn between activity regarded as dealing and activity regarded as investment?

First, it is important to realise that the tests for whether one is dealing in property or making a property investment are the same as for any other trade. Therefore, a good place to start is to look at the ‘badges of trade’ and considerations will include:

•
profit seeking motive
•
frequency and number of similar transactions
•
modification of

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Rob Durrant-Walker

Tax Director at Crane Dale Tax , Corporate Tax, OMB, Personal Tax

Rob is a cross-tax advisor with a particular focus on property tax planning, and business structure planning for OMB’s. He provides tax advice to other accounting firms, balancing commerciality, ethics, and understanding complexity. His 30+ years of experience start at the Inland Revenue in Hull. After completing his ATT and CTA by 1999 with PKF, he subsequently worked at KPMG and UHY prior to managing the business tax team as a director at Garbutt + Elliott. Rob is now Tax Director at the independent tax consultancy, Crane Dale Tax. He is a regular author for Taxation magazine with many articles and Readers Forum contributions since 2005, and he contributes as a virtual member to the CIOT Property Tax technical committee. Rob works remotely from Vancouver in Canada.

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