The High Court has ruled that Niall O’Farrell’s purchase of 28 Shrewsbury Road, Ballsbridge, formed part of a land-development trade and that the trade began on 21 February 2005. The decision means he was entitled to claim trading losses from that date against income tax, as allowed by the Appeal Commissioner.
The Revenue Commissioners brought the appeal by way of a case stated under section 941 of the Taxes Consolidation Act 1997. They argued that the Appeal Commissioner had erred in law by treating the purchase as trading activity rather than an investment, and alternatively that the trade had not begun. The court rejected the respondent’s argument that the case raised only questions of fact, finding that the Appeal Commissioner had put proper questions of law to the High Court.
The Appeal Commissioner had found that O’Farrell bought the property for redevelopment and resale, never intended to live there, and briefly rented it to a neighbour. He made three planning applications; the only successful one, in 2009, was for a single house. No physical development took place. Three bank loans totalling €11 million were secured in relation to the purchase and proposed development. The bank’s sanction letter said the loans were to be repaid from the sale of two properties within two years.
The Revenue submitted that the purchase and planning applications were preparatory steps, relying principally on the 1975 High Court decision in Spa Estates v O hArgain. It argued that building work was needed before a land-development trade could be considered to have started. O’Farrell’s submissions were that he had a defined development plan, had taken on substantial financial risk and had secured finance for both the purchase and development. He also said the property’s temporary letting did not change his purpose, and that the property remained in his possession longer than expected following the 2008 property crash.
Justice Murphy adopted principles from the UK decision in Mansell, under which a trade may begin before a first sale where a taxpayer with a specific profit-making plan undertakes operational activity involving financial risk. She found that O’Farrell put his plan into operation by purchasing the property with a clear development plan and finance for the proposed work. The court also distinguished Spa Estates, describing it as involving different facts and a different tax context.
The court answered “Yes” to both questions in the case stated: the activity was on the trading side, and the land-development trade began on 21 February 2005. The judgment did not itself calculate or award a particular tax repayment; it upheld the Appeal Commissioner’s determination that losses from the commencement date were allowable against income tax.