Property developers make their profits by taking an existing property and developing to maximise the return obtained from it. This may just be redecorating the property, inside and out, and selling it on or it could be purchasing a plot of land and building one or more properties on it.

The developer makes their money by improving an existing place and selling it for a profit. Any rental income is incidental to the main development of the property.

Generally, property development is carried out through a limited company but it is possible to do so as a sole trader or partnership.

The developer will purchase a plot of land, build new properties on it, having obtained the relevant permissions, and will then sell the new properties to make their profit.

Alternatively, they purchase an existing property, enhance it and then sell it on.

The developer trades in properties so the sale proceeds, after deducting costs, are the trading profits subject to income tax. There are no capital gains on the sale.

It is important that when purchasing a property the intention of the purchasers is recorded at the point of sale as if this is not clear then the tax treatment of the costs and proceeds can be significantly different. We recommend that a board minute is created when a property is purchased confirming that the property has been purchased as a development property or an investment property.

In general it is best from a tax point of view to keep property development and property investment in different companies.

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