How is the profit or gain on a disposal of land calculated under section 517I of the Income Tax Act 2007?

Section 517I requires the profit or gain to be calculated using the same principles that apply to computing trading profits under Part 2 of ITTOIA 2005. This means following the approach used when preparing trading accounts — recognising income and deducting allowable expenditure in accordance with generally accepted accounting practice, as modified by relevant statutory rules.

Can the trading profit calculation rules be modified for land disposals under section 517I?

Yes, section 517I permits appropriate modifications to be made to the trading profit principles where circumstances require it. This provides flexibility to adapt the Part 2 ITTOIA 2005 framework to the specific facts of a land transaction that may not fit perfectly into a standard trading profit computation.

How are losses on land disposals treated under section 517I of the Income Tax Act 2007?

Losses are treated in exactly the same way as profits under section 517I. There is no separate or asymmetric method for calculating a loss. You apply the same trading profit computation principles from Part 2 of ITTOIA 2005, and if the resulting figure is negative, that amount represents a loss rather than a profit.

What allowable costs can be deducted when calculating the surplus on a UK land disposal?

Following the trading profit principles of Part 2 of ITTOIA 2005, allowable costs such as the original purchase price, legal fees, and any enhancement expenditure are deducted from the disposal proceeds. The resulting figure represents the profit or loss chargeable to income tax under this Part of the Income Tax Act 2007.

Income Tax Act 2007 section 517I

Calculation of surplus on a disposal of land

Section 517I sets out how to calculate the profit or gain (or loss) arising from a disposal of land in the United Kingdom for the purposes of the income tax charge on certain land-related transactions.

Any profit or gain from a disposal of property must be calculated using the same principles that apply to computing trading profits under Part 2 of ITTOIA 2005.
Appropriate modifications to those trading profit principles may be made where the circumstances require it.
The same calculation rules apply equally to losses as to profits — there is no separate method for working out a loss on disposal.
This ensures a consistent, well-understood framework is used for measuring the taxable surplus on land disposals caught by this Part.

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