Beta This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

Business Income Manual

Amounts treated as profits of a trade of dealing in UK land: Conditions

The purpose of this legislation is to ensure that profits from activities which, when looked at in the round, amount to (i) a trade in land or (ii) a trade of developing land, are taxed as trading profits. It is not the purpose of these rules to alter the treatment of activity that is clearly investment.

The rules effectively look through structures or arrangements which might allow an argument, that on a strict legal analysis, the transactions in question do not amount to a trade.

These rules do not alter the treatment of or recharacterise investment activities, except where they are part of such a wider trading activity. In particular, they do not apply to transactions such as buying or repairing a property for the purpose of earning rental income, or as an investment to generate rental income and enjoy capital appreciation.

The legislation should always be understood in the context that it is taxing only what are, in substance, trading profits.  

Amounts are treated as profits of a trade of dealing in or developing UK land where one or more of Conditions A to D are met. The conditions are set out in Section 356OB (4)-(7) CTA 2010 and Sections 517B (4)-(7) ITA 2007.

If any of the conditions are met and a person realises a profit or gain from a disposal of UK land, the profits should be treated as profits of a trade of dealing in or developing UK land. 

The conditions are as follows:

Condition A: the main purpose, or one of the main purposes, of acquiring the land was to realise a profit or gain from disposing of the land.

Condition B: the main purpose, or one of the main purposes, of acquiring any property deriving its value from the land was to realise a profit or gain from disposing of the land.

For example, if an individual purchases shares and the reason for acquiring the shares was to dispose of land held by the company and make a profit.  

Condition C: the land is held as trading stock.

Condition D: (where the land has been developed) the main purpose or one of the main purposes of developing the land was to realise a profit or gain from disposing of the land.