Property investment or trading?

Produced by Tolley

The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Property investment or trading?
  • Outline
  • Property investment or trading ― why it matters
  • Income tax v capital gains tax
  • Companies
  • Property and stock appropriation
  • Loss relief
  • Property business and business property relief

Property investment or trading?


The distinction between dealing or development and investing in property is crucial to many areas of tax law. Often it will be quite clear cut as to whether a person is trading or investing in land. A person buying property to let out long term will be making a property investment, whereas someone buying a property to refurbish and sell will most likely be trading as a property dealer or property developer. However, where does one draw the line between activity regarded as dealing and activity looked upon as investment?

First, it is important to realise that the tests for whether one is dealing in property or making a property investment are the same as for any other trade. Therefore, a good place to start is to look at the ‘badges of trade’.

The badges of trade are not a statutory concept, but are a recognised set of criteria developed by the courts to identify when a person is undertaking a trading activity. They can be applied to property transactions just as they can to a variety of other activities.

It is not necessary for a transaction to have all of the badges in order to be regarded as dealing or developing and clearly some badges will carry greater weight than others, depending on the facts of the case. Indeed, in some cases the existence of one single badge can be enough for the person to be trading. The situation will therefore always need to be considered carefully in

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