Although we may accept that land was acquired as a capital asset
or as an investment the facts may suggest that it was subsequently
developed or dealt with in such a way that it became stock of a
newly set up trade or adventure in the nature of trade. This is the
concept of supervening trade.
There is judicial support for this concept in dicta in Taylor
v Good [1974] 49TC277 (at p.287), Lionel Simmons Properties Ltd v
CIR [1980] (53TC461), at p.491, and Page v Lowther [1983]
(57TC199), at p.217.
Worthwhile cases should be pursued where it is possible to
identify a clear change of intention with regard to the land. That
intention must normally find physical expression. An example might
involve the demolition of a warehouse previously held as a capital
asset and the construction for sale of residential flats. It is
once again a question of fact and degree. The greater the change in
character of the land, the stronger the supervening trading
argument becomes.
The change of intention will involve an appropriation of the
capital asset to trading stock when the trading activity begins and
there will therefore be a deemed disposal at that moment for
Capital Gains Tax purposes under TCGA92/S161. The determination of
that moment is entirely a question of fact. You should therefore
ensure that you examine the history of the project in sufficient
detail to be able to identify and, if necessary, to argue for the
appropriate date. This date will of course have implications both
for the valuation of the land and the expenditure that is allowable
as a trade expense (or even as pre-trading expenditure under
ICTA88/S401).
All cases involving supervening trading should be submitted
to Business Tax (Technical) before listing for a contentious
hearing.
