Income or capital

[Incredulum]

An individual works for a large company. A subsidiary of this company has just built a series of homes - not something it has normally done. About three years ago an individual - and their spouse - exchanged contracts on one of these homes, whilst it was still off-plan. Prior to shortly-anticipated completion, they have sold on the benefit of this contract to a third party, for a considerable profit.

It is unlikely that either the individual or the company will be engaging in this sort of transaction again.

It's unclear why the individual bought the property; 'to make money, of course' - but whether through letting it or quick capital disposal or long-term capital disposal, who knows. I don't suppose the individual knew at the time.

Trading income, miscellaneous income, or capital gain? I'm sure some of the practitioners on here will have agonised over similar decisions, and I'd be grateful if you would be so kind as to share your thoughts.

Thanks.

[Lambs]

Short- or long-term finance?

Did they instruct agents to look for agents, or enquire of their solicitors as to whether or not it was permissiblet to let?

I imagine there might be some documentary evidence of their intentions during a protracted period of interest in the property.

Were they approached by purchasers, or did they market for sale?

Just a few thoughts.

Regards,

Lambs

[Incredulum]

No finance; cash - as the only cash put down was the 20% deposit.

No correspondence. Being intimately involved with the project the individual was well aware that the property was worth far more than original cost long before there was any thought of rental. It was therefore sold through the employer's marketing function (to which no fee was paid). If we're being honest, they probably hoped to flip it before completion, but of course they could have lost their 20% deposit and more if the market had gone in the other direction.

[AvocadoK]

What about Rowlatt J's statement in Ryall v Hoare:

a casual profit made on an isolated purchase and sale, unless merged with similar transactions in the carrying on of a trade or business is not liable to tax.

Obviously he was referring to income tax. I'd have thought that CGT might well apply, if the contract is regarded as an asset.

[LozaACCS]

I think trading income can be discounted, the issue would then be case V1 misc income or capital gain.

The principle of Alloway V Phillips could apply if the right to buy were viewed as a chose in action, this would render the profit liable to IT.

In this case it seems the asset was owned outright this would in MHO render it liable to CGT.

[Incredulum]

The principle of Alloway V Phillips could apply if the right to buy were viewed as a chose in action, this would render the profit liable to IT.

No "right to buy"; they had exchanged contracts, so had beneficial ownership (over a lump of air well above ground level!).

Thanks for your thoughts.