It might be thought that the meaning of the phrase ‘property developer’ is as clear as a bell. However, in a tax case of great significance to corporate property owners, its precise definition proved challenging to say the least.

The case concerned the Annual Tax on Enveloped Dwellings (ATED), which requires payment of an annual levy by companies, certain partnerships and collective investment schemes which own residential properties in this country that are valued at more than £500,000. Property developers, property traders and property rental businesses are, however, exempted from ATED.

A British Virgin Islands-registered company that owned one such property received demands for more than £200,000 in ATED in respect of two financial years, on the basis that the property was worth between £10 million and £20 million. In denying any liability to pay ATED, however, it asserted that it was engaged in trade as a property developer.

Although the company had paid ATED without complaint in previous years, it argued that it had put on a property developer’s hat by spending about £1 million on the property’s comprehensive refurbishment with a view to selling it at a profit. It carried out those works after the property failed to sell at a price of £13.5 million. The company’s arguments, however, failed before the First-tier Tribunal.

Ruling on the company’s challenge to that outcome, the Upper Tribunal noted that the central issue was whether it was engaged in ‘trade’ as a property developer. There was no dispute that a residential property may be held as trading stock by a developer and that a one-off transaction can constitute a venture in the nature of trade. HM Revenue and Customs also accepted that the works were so substantial that the property had, in effect, been redeveloped.

There was, however, insufficient evidence that the company’s board had resolved to hold the property for a trading purpose. The mere possibility that the cost of the works might be more than recouped on the property’s sale, thus yielding a profit, did not mean that they had been performed in the course of trade. It was a fallacy to assume that the company must, as a result of its corporate status, be carrying on a business.

There was no evidence that the company was engaged in commercial operations. It had at no time sought to make money from its holding of the property, other than by its future sale. It appeared to be no more than a passive, property-owning vehicle established for the purpose of ‘enveloping’ the ownership of the property in corporate form. The appeal was dismissed.