Property development - trade or investment

[Graham_07]

One for the tax experts/accountants. Have been posed this question and would appreciate some opinions.
Person trading as a shopkeeper and landlord. Builds two three-bed semi-D's in one block , i.e. two houses in total, on land adjacent to business. Engaged a builder to do this for him. Land is Town renewal zoned so it has Sectioned relief. Relief is for either owner occupier or investor. He has option of keeping, renting them & using relief against his cumulative rents. If he sells them immediately with relief, is he likely to be classified as a developer and thereby taxed on income tax rules or is the gain taxed according to CGT.
( sorry should probably have posted this in Taxation )

 

[simplyjoe]

The question that must be asked is what did he originally intend to do? If the original intention was to build to hold onto them and he can prove this then CGT applies. If he can't prove this then he is a developer and will pay VAT, income tax at marginal rate and 20% ring fenced rate on the site development profit. The tax relief status would have very little impact on deciding which tax charge should be applied. The onus of proof is high. You would probably need only a short term loan facility to be in place, correspondence from/with potential tenants or estate agents, correspondence from tax advisors explaining the owner occupier relief, etc.. He should get advise from a good specialist tax consultant. I use Mazars Tierney in Galway - Jim Tierney.

 

[Graham_07]

Thanks simplyjoe. As I understand it his intentions have swung from hold on and use against other own rents to sell and back again several times, making the whole thing rather uncertain. I had been pretty much of the view that income tax would apply on sale once that was his intent but a lot of bar counter advice from "experts" who've done it and only paid CGT is making it difficult to get the income tax potential across.