Are you a property investor or a developer? It can sometimes be a fine line that distinguishes the two but getting it wrong has important tax implications!

As programmes like Property Ladder attest, many people are keen to invest in property and are confident that they can make a sizeable profit by doing a property up and selling it on.

From a tax perspective, difficulties may arise in that it is not always clear cut whether a person is investing in property or trading as a property developer. This is an important distinction as it determines how any profit on sale is taxed. In the case of an individual, a gain on an investment property would be taxed as a capital gain whereas profits made by a person trading as a property developer would be liable to income tax. In a climate where capital gains tax (CGT) rates are considerably lower than the highest rate of Income Tax, the attraction of realising a capital gain is apparent.

How do I know?

However, one does not get to pick which tax one pays (well, not after the event at least). Whether a person is trading is a question of fact and the normal badges of trade apply. The starting point for deciding whether one is dealing with a trading or investment situation is the intention of the owner at the outset.