My client is a self-employed antique dealer aged 60. 2 friends of his persuaded him to join them in buying a run-down seaside property in Norfolk 2 years ago. The property has been refurbished and sold at a large profit. The 2 friends are in the building trade, and are going to report their share of the profit as trading income. My client wants to report his share as capital gain. He has never done this kind of transaction before. There is no documentation about the nature of the relationship of the 3 people, but he merely put up one-third of the cost and refurb expenditure, and got one third of the proceeds. He did not contribute any expertise. Will the transaction be accepted as capital gain as far as he is concerned?
HS
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A clear partnership
In default of any written agreement your client is in a three person partnership as per the Partnership Act of 1896. It may have been possible to structure the deal differently had a proper partnership agreement been drafted at the very start. As it is he is clearly a partner in a property development business.
No
He was in a joint venture to develop a property. The profits are taxable as trading income.