Development Checklist No 5 - Income Taxation No1 Developer's / Owner's Objectives (Update 1 13 October 2011)

Check 5.1  Check the owner's / developer's objectives so as to become aware of any income taxation implications and hence prepare compliance activities if appropriate.

Check 5.2 Check all development expenditures and become aware of the differences in tax treatment for capital expenditure and revenue expenditure.

Check 5.3 Check capital expenditure for capital allowances. Some capital expenditures may be annualised as capital allowances and taken off net income in income taxation calculations.

Objectives
Checklist 1A examined the objectives of the owner/developer of land  or land and buildings. This checklist (No 5) reviews the income taxation implications of those with various objectives. Generally, a landed property is regarded as a capital asset. If appropriate capital gain tax will arise on a disposal or part disposal. However, the landed property of a dealer in landed property is regarded as "stock-in-trade". Thus, if a dealer brings a capital asset into stock, a tax adjustments may be required.

Compliance
The owner / developer will normally be advised on statutory compliance for specialist taxation purposes by professional advisors, eg accountant, solicitor or surveyor.

Residential : Generally the owner / developer of residential property for his or her own occupation is not liable to income taxation on their occupation. If part of the owner-occupied property is let or a business is conducted a liability to income tax may arise. Possibilities include:

• Accommodation is let - a liability to income tax on the net income arises - but it may be given relief under the "rent-a-room" provisions. There is a requirement to notify HMRC in the annual tax return.
• Bed and breakfast business is conducted at the dwelling liability arises on the net income. Again the income should be declared.
• Some business or artistic enterprise is conducted, eg writing, painting, sculpture, or on-line sales, resulting in income taxation on the net income. (Working for an employer from home would not normally result in income tax other than normal income tax on salary or wages.) 

Business : Net profits from a business conducted in a shop, workshop, showroom etc will be liable to income taxation. Any rent or premium paid for the property will be allowed in some way as business outlay or expense.

Dealing : Buying and selling property for profit will result in the net profits from the dealing in property to be liable to income taxation.

Investment : Net rental income from letting property (an investment in property) is liable to income taxation.

Objective: Generally,property occupied for charitable or public purposes will not be liable to income taxation.

Functional : Where property is owned by a utility as a business, eg a private sector company, the business will be treated as business for income taxation purposes.

Please note: "Income taxation" cover income tax or corporation tax. One or other of these two will be charged according to whether the "person" is an individual or an "organisation".