CheckLists.Tax (beta)
J1: Sale of land
GENERAL
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Formalities for valid contract
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- Contract for sale or disposition of land must be in writing and incorporate all terms
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- LPMA s.2
- Recitals are not operative provisions and cannot incorporate other terms/agreements (Shelford, §82).
- Agreement void where written documents did not reflect the true agreement between the parties - a case of 'mislabelling' rather than sham (Shelford, §§71, 83).
Legislation: Law of Property (Miscellaneous Provisions) Act 1989, s.2.
Cases:
Shelford v. Revenue [2020] UKFTT 53 (TC);
HMRC manuals:
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Capital gain or income profit
Consider the badges of trade
- Subject-matter of realisation - is it suitable for personal use or does it produce income?
- Length of ownership - shorter period points to trade.
- Method of financing purchase - short term finance points to intention to sell quickly.
- Frequency of transactions - more transactions make a trade more likely.
- Supplementary work - working on an asset to enhance its sale value points to trade.
- Business organisation - sophisticated business practices point to trade.
- Reason for sale - emergency need to raise capital, for example, may reduce weight of other factors.
- Profit-seeking motive for original purchase - purchasing with intention of selling at a profit points to trade.
- Connection to existing trade - same or similar subject-matter as existing trade points to activity being part of that trade.
Legislation:
Cases:
HMRC manuals: BIM20200
Commentary:
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Change of intention prior to sale
- "Although we may accept that land was acquired as a capital asset or as an investment the facts may suggest that it was subsequently developed or dealt with in such a way that it became stock of a newly set up trade or adventure in the nature of trade. This is the concept of supervening trade." (BIM60060)
- Apply the rules relating to appropriation to trading stock.
Legislation: TCGA s.161.
Cases:
HMRC manuals: BIM60060
Commentary:
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Investment land for which planning permission is obtained prior to sale
Obtaining planning permission prior to sale does not, in itself, characterise a transaction as trading.
Legislation:
Cases: Taylor v. Good 49 TC 277
HMRC manuals: BIM60070
Commentary:
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INCOME TAX
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Settlements code (attribution of income to settlor)
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- Parents funding/providing services to company owned by children to carry on development as a settlement
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- Butler v. Wildin: T's children acquired shares for a 'trifling sum' in a company set up to carry out a development project. T made loans to the company and guaranteed bank loans. Held that this arrangement was a settlement.
- "The risk that the development would not prove profitable and might result in loss was taken by the taxpayers."
- "the arrangement made by the taxpayers was clearly a reciprocal arrangement under which each contributed, whether by the provision of skill and services or by making temporary loans, to the common purpose of providing the shareholders of the company and so indirectly and to the extent of their shareholding the four older children with an income-producing asset free of risk and cost."
- Shares transferred later by an uncle were disregarded as not being part of the arrangement.
- Shares transferred later by father were their own settlement.
- Query whether the company income or the dividend is the income arising under the settlement (or both).​
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Legislation:
Cases:
Butler v. Wildin [1989] STC 22;
HMRC manuals:
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INCOME TAX: TRANSACTIONS IN LAND
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Gains treated as trading profits (transactions in land)
Main purpose of acquiring the land was to realise a profit from disposing of the land
Profit treated as trading profit.
Legislation: CTA 2010, s.356OB(4)
Cases:
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Main purpose of acquiring property deriving its value from land (e.g. shares in company owning land) was to realise a profit from disposing of the land
Profit treated as trading profit.
Legislation: CTA 2010, s.356OB(5)
Cases:
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Land held as trading stock
Profit treated as trading profit.
Legislation: CTA 2010, s.356OB(6)
Cases:
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Land developed with a main purpose of realising a profit from disposing of developed land
- Profit treated as trading profit.
- Obtaining planning permission is not development (BIM60806)
Legislation: CTA 2010, s.356OB(7)
Cases:
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Related rules
- Same rule applies to losses (s.356OF)
- Targeted anti-avoidance rule (s.356OK)
- Apportionment if part of profit fairly attributable to period before arrangement to develop (s.356OL(4))
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Persons interested in disposal of land treated as realising trading profit
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Legislation: CTA 2009, s.5(2) - (2A), s.5A, s.5B.
Cases:
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Non-resident vendor - income profit
Company carrying on trade of dealing in or developing UK land
- Within the charge to corporation tax on income from 5 July 2016.
- No rebasing
- The whole of the profits of the trade (wherever arising) are charged. Anti-avoidance rule to block attempts to get around this.
Legislation: CTA 2009, s.5(2) - (2A), s.5A, s.5B.
Cases:
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Transactions in land gains treated as trading profit
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Legislation: CTA 2010, s.356OC(2)
Cases:
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Non-resident vendor - capital profit
Liable to UK tax
Non-companies are liable to CGT (TCGA s.1A(3)(b))
Companies are liable to corporation tax (TCGA s.2B(4)(a))
Legislation:
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Rebasing of residential land to value as at 5 April 2015
- Special rules for assets that were partly chargeable before 5 April 2019 (Sch 4AA, para 12).
- Option to elect out of rebasing.
- No rebasing if company or trust became non-resident after 5 April 2019 (Sch 4AA, para 17 and 18)
Legislation: Sch 4AA, para 7
Cases:
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Land with planning permission for dwellings is not residential
But it is residential if there is an agreement to build a dwelling on the land.
Legislation: Sch 4AA, para 2(2)
Cases:
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Rebasing of non-residential land to value as at 5 April 2019
- Special rules for assets that were partly chargeable before 5 April 2019 (Sch 4AA, para 12).
- Option to elect out of rebasing.
Legislation: Sch 4AA, para 3
Cases:
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Obligation to file tax return within 30 days
Obtaining planning permission prior to sale does not, in itself, characterise a transaction as trading.
Legislation:
Cases: Taylor v. Good 49 TC 277
HMRC manuals: BIM60070
Commentary:
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Rebasing for recently resident company
Company becoming resident after 5 April 2019 can apply rebasing
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Legislation: Sch 4AA, para 16.
HMRC manuals:
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Persons interested in non-resident vendor
Anti-avoidance rules not applicable
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Legislation: TGCA s.86(4ZA) and 87(5A)
HMRC manuals:
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VAT on sale of land
Sale of residential property exempt or zero-rated
Exempt unless it is the first supply of a major interest by the developer, in which case it is zero-rated to allow input recovery.
Legislation:
Cases
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Purchase of multiple dwellings at the same time
Multiple dwellings relief
- Suitable for use as a single dwelling implies that it is currently suitable, not that it would be if adapted or altered other than minor repair or renovation (Fiander, §48(1), §64)
- A dwelling is a place suitable for residential accommodation that can provide the occupant with basic domestic living needs (degree of privacy, self-sufficiency and security) (Fiander, §48(2))
- Must be suitable generally, not just for the occupation of a particular type of occupant, e.g. a relative (Fiander, §48(5))
- Test is objective (Fiander, §48).
Legislation: FA 2003, Sch 6B.
Cases: Fiander v. HMRC [2021] UKUT 156 (TCC);
HMRC manuals:
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