Property Tax Case Summary: Terrace Hill (Berkeley) Ltd v HMRC 
Release Date: 12 February 2015
Whether a property developer held a property development as trading or investment.
It was held by the First-Tier Tax Tribunal that the property was an investment and not trading stock. This was due to the intention of the Appellant when the property was first acquired.
Terrace Hill Group are property developers. They also hold some investment properties where they anticipate rental growth.
An SPV, Terrace Hill (Berkeley) Limited, was formed to hold a property development in Mayfair. The property was demolished and replaced with an office building. The property was treated as capital for accounting purposes and capital allowances were claimed on the expenditure. After achieving lower rental levels than expected, the property was subsequently sold.
HMRC challenged the treatment and argued the property was trading stock rather than an investment. HMRC also sought to impose a penalty on the taxpayer for being negligent.
The taxpayer argued that the property was always intended to be retained as an investment.
HMRC argued Terrace Hill had always intended to sell the property soon after development. It was also claimed the benefit of capital allowances and indexation on sale were factors for Terrance Hill to claim the property was an investment.
The FTT found the case to be “finely balanced” but that the property was held as an investment. They noted the property had always been treated as a capital asset which shows the intention on acquisition and agreed it was the rental performance combined with an attractive offer to sell that led to the change in circumstances.
What this means
Developers may hold properties as investments, their intention on acquisition of properties needs to be clear and may need evidence to support their decision in the future.