Revenue Note for Guidance

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Revenue Note for Guidance

640 Extension of charge under Case I of Schedule D to certain profits from dealing in or developing land


Broadly, the intention underlying this section is to bring within the charge to tax under Case I of Schedule D the profits of certain activities undertaken in the course of a business of dealing in or developing land which would not be regarded as trading because of the decisions in two Irish court cases, namely, Birch v Delaney in 1936, and Swaine v V.E. in 1964. In the Delaney case it was held that a builder would not be regarded under general tax law as having sold anything if, instead of disposing of a completed building outright, the builder leased the building under a long lease for a large premium but retained a small ground rent. In the Swaine v V.E. case a building company that acquired farm land with the intention of farming it, but later built houses on the land, could not be taxed as a trader because the land had not been acquired with the intention of developing it. The section also takes account of a 1977 decision in the case of Mara v Hummingbird which provided that the original (1968) legislation might not apply where the whole of a person’s interest in land had been disposed of.


Construction of the terms “dealing” and “developing” as used in subsection (2)

(1)(a) The disposal, as regards the whole or a part of any land, of the interest acquired, or of an interest which derives therefrom, is to be regarded as dealing in land. This provides against a possible argument that, in the ordinary use of language, “dealing in” articles or commodities implies purchase and re-sale; and that, by analogy, dealing in land can be said to take place only where the full interest acquired is disposed of. On this view a person who, having acquired the fee simple of a parcel of land, grants a lease or leases could not be said to be dealing in land. There is also the consideration that, in relation to, for example, a case in which a person develops and disposes of land which the person has farmed, or held as an investment, for a number of years, it is essential to the effectiveness of subsection (2) that the disposal alone could be regarded as a business of dealing in land.

(1)(b) The provisions of subsection (2) will apply to a person who has the development of land carried out by another person (who might be, for example, a company under the person’s control or an independent contractor) where it would have applied to the person if the development work had been done by the person (or by employees of the person).

Dealing in or developing land: when is it regarded as trading?

(2) The circumstances are set out in which dealing in or developing land which, under the general law, does not constitute trading is to be regarded as trading and the profits charged accordingly.

The essential conditions required for the application of the section are that dealing in or developing land should be carried on and that it should be carried on in such a way as to constitute a business. The expression “business of dealing in or developing land” is not defined and is to be construed according to its ordinary meaning as applied to the subject matter with regard to which it is used.

In a case in which the existence of a business of dealing in or developing land has been established, the subsection is concerned only with the activities (if any) of the business which, under the general law, cannot be regarded as trading. In regard to such activities it calls for the determination of the question: would those activities have fallen to be treated as trading activities if every disposal of an interest in land included among those activities had been a disposal of the full interest acquired by the person by whom the business is carried on – and that interest had been acquired by the person in the course of the business? Where this question is answered in the affirmative, the business is deemed to be wholly a trade, or part of a trade, as the case may be, and the profits charged under Case I of Schedule D.

Broadly, the effect of the subsection is that the question whether a given complex of activities involving the turning over of an interest in land constitutes trading in the Schedule D sense is to be determined as if —

  • the granting of a lease wholly or partly in consideration of a premium were a sale, and
  • the operator had acquired the interest in the land concerned with the intention of carrying out the operations and transactions which the operator did in fact carry out.

Disposals of interests in land effected in the course of winding-up of a company

(3) Where there are disposals of interests in land during the winding-up of a company, the company is to be treated as having continued to carry on its trade or business up to the time when the disposals are completed and, for the purpose of determining whether profits arising on the disposals are taxable, the winding-up is to be disregarded. In the absence of a provision of this kind, the question whether the company’s activities amounted to a business of dealing in or developing land and, if so, whether that business is to be regarded as a trade would normally have to be decided by reference only to what had been done up to the time when the winding-up commenced. Subsequent transactions would have to be treated as realisations of the company’s assets.

Relevant Date: Finance Act 2021