Lawrence Stephens
3 Contributions by Lawrence Stephens Experts
PRACTICE NOTES
Property development
Within the real estate arena, development activity is fundamental for all participants, whether they are specialist developers or owners enhancing their own investment properties. Projects may range from light refurbishment and substantial alterations through to entirely new construction. Although those undertaking these activities are typically taxed under the ordinary rules, certain provisions apply specifically to property development. Development can be for commercial purposes, for residential use, or a mix of both, for example where flats are created above commercial space at street level. Many of the issues arising for commercial and residential schemes are similar, though notable differences do exist. For any project, it is necessary to evaluate indirect tax as well as direct tax. This Practice Note looks at the direct tax considerations that arise in particular on the development of land for residential use. The focus is on
Tax
PRACTICE NOTES
Property development sits at the heart of what everyone in the real estate industry does, from dedicated developers to owners improving their own investment assets. Projects may span light refurbishment and significant remodelling right through to ground‑up builds. Participants are mainly taxed under the ordinary regime, although certain rules are tailored specifically to development. Schemes may deliver commercial premises, dwellings, or mixed‑use outcomes, for example flats above shopfronts at pavement level. Many of the issues overlap across commercial and residential schemes, though material distinctions also arise. Any project must address indirect taxes alongside direct tax questions. This Practice Note examines direct tax matters that arise specifically on commercial land development. Its focus is the position of landowners developing their own sites, rather than contractors delivering works without a proprietary stake in the land. It also encompasses investors enhancing their holdings as well as
Tax
PRACTICE NOTES
Practice Note
The tax outcome for the owner hinges on whether a property is bought, retained or sold as an investment or as part of a trading (ie dealing) venture. Land, more than many other asset classes, can be kept as an investment or treated as trading stock, and the correct classification turns on each party’s particular position—the identical deal may amount to investment for one participant and trading for someone else. This Practice Note sets out the main factors used to differentiate trading from investment activity in relation to property. Those factors apply equally to transactions yielding gains and those producing losses. It also explains HMRC’s stance when opening enquiries into whether a property deal is trading or an investment in nature. It further addresses particular situations, such as mixed-motive transactions, taxpayers both dealing and investing, and tenants transacting in superior
Tax
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