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HMRC internal manual

Business Income Manual

Measuring the profits (particular trades): land: trading transactions: loss making transactions

S26 Income Tax (Trading and Other Income) Act 2005, S47 Corporation Tax Act 2009

There may be periods when there is a slump in the property market.

In these circumstances a one off transaction may give rise to a loss. You may be faced with an argument, from a person who is not a land dealer, that the transaction was a trading transaction and the loss is relievable as a trading loss.

The same principles have to be used in determining the character of loss making transactions as profitable ones. Once again the final question is whether the transaction could fairly be described as a ‘deal or an investment’ (Marson v Morton and Others [1986] 59TC381), albeit, in the latter case, an investment which went wrong. The key issue is the intention of the purchaser at the time of acquisition: Lionel Simmons Properties Ltd v CIR [1980] 53TC461.

If a loss-making transaction is decided to be a trading transaction, the same rules should be applied to calculate the amount of the loss for tax purposes as would be used to calculate profits.