639 Interpretation (Chapter 1)

Summary

This section provides for the interpretation and construction of various expressions used in the Chapter.

Details

Definitions and construction

(1) The definition of “development” embraces the construction of new buildings and the extension, alteration or demolition of existing buildings. It also covers engineering operations such as levelling, construction of roads, and the laying of sewers, or water or gas mains which adapt the land for materially altered use. It does not include maintenance or repair or engineering works which do not adapt the land for materially altered use.

The term “trading stock” is, in effect, defined as meaning property, whether real or personal, such as is sold in the ordinary course of the trade in relation to which the expression is used.

The definitions of “company” and “market value” are self-explanatory.

It is to be noted that, by virtue of section 12 of, and the Schedule to, the Interpretation Act, 1937, “land” (which is not defined by section 639) includes, unless the contrary intention appears, “messuages, tenements, and hereditaments, houses and buildings, of any tenure.”

The final paragraph of subsection (1) ensures that the granting of a lease ranks as a disposal of an interest. The object is to remove the ground for a possible argument that one can dispose only of something which is already in existence whereas the interest which a lessee acquires is brought into existence by the very act which it is sought to describe as a “disposal”. The portion of the paragraph which refers to an interest which ceases on its acquisition provides for, for example, a case in which a speculative builder, having bought the fee simple of an area of land, subsequently “buys out” a person who has a lease (to which the fee simple is subject) of the land or of a part of it. After the second transaction the builder would have one interest only but the cost of both acquisitions should clearly be allowed in arriving at the builder’s profits.

(2)(a) The mortgaging of property as security for a loan, or the granting of a lease on terms which do not require payment of any premium, is not to be regarded as a disposal of an interest. This is to prevent a speculative builder, for example, from writing down the value of property in the accounts on the basis that, by mortgaging or letting it, the builder has disposed of part of the builder’s interest. As regards leases for which no premium is payable there is the further consideration that the full income arising to the landlord would be taxable under Chapter 8 of Part 4.

(2)(b) As a precautionary measure, it is provided that an option to purchase is to be regarded as an interest in land. What is in mind here is the possibility that, as an avoidance device, an option to purchase might be granted at an artificially high price and the subsequent sale made at an artificially low price. This provision is primarily intended to ensure that, in such a case, the vendor could not successfully argue that only the sale consideration should be taken into account in computing profits.

Specific provision was not considered necessary in relation to a case in which A enters into a contract to purchase land from B (and pays a deposit); resells within a short time to C and has the conveyance or transfer executed by B in favour of C. In such a case, A would have acquired and disposed of an equitable interest in the land and, if A carried out the transactions in the course of a trade of dealing in land, any profit made by A would be taxable.

Application

(3) The provisions of subsection (3) obviate the possibility of the intention of the Chapter being defeated by arguments based on the general law in relation to the taxation of rents and certain other payments (such as premiums) as set out in Chapter 8 of Part 4. However, the possibility of a premium or like sum being taxed as rent and again as a receipt of a business of dealing in land is excluded by provisions embodied in sections 99(2), 100(4) and 641(2).

Relevant Date: Finance Act 2019