Readers’ forum: Capital gain on residential land and share of new property

Investment property

Our client has purchased a residential property in need of some modernisation. His intention was to renovate and keep the property as an investment property.

However a property developer has advised that if he demolishes the property and sells him the land the developer will build a new residential property and my client will be entitled to a share of any gain made by the developer.

My client will not be actively involved in the new development but would organise demolishing the original property prior to a sale of the land.

Hopefully for my client there will be two transactions to report on his tax return in two different tax years.

I would like to think that both would qualify as capital transactions but I think that the change in direction would render one or both transactions as trading and would be grateful for readers’ advice....