Upper Tribunal rules UK tax treaty provisions covered profits from developing and selling UK land
UK corporation tax applies to profits made by an Isle of Man-resident company from developing and selling land in the UK, the Upper Tribunal has ruled in a decision concerning the allocation of taxing rights between the UK and the Isle of Man.
The judgment in Knights Developments Limited v The Commissioners for HMRC, [2026] UKUT 329 (TCC), was handed down on 25 August 2026 by the Upper Tribunal (Tax and Chancery Chamber). The appeal concerned whether profits made by Knights Developments Limited (KDL) from UK property development fell within the relevant UK-Isle of Man double taxation arrangements.
KDL was resident in the Isle of Man and was not resident in the UK. It carried on a trade of acquiring, developing and selling UK land. The parties agreed that its profits were trading profits and were income in nature rather than capital gains under UK domestic tax law. HMRC also accepted that KDL did not have a permanent establishment in the UK.
The case concerned property development at Knights Wood, also known as Knights Park, in Tunbridge Wells, Kent. KDL acquired the land and treated it as trading stock and work in progress. Development work was undertaken by another company within the wider group, while completed properties were sold to third-party purchasers.
HMRC had issued closure notices seeking additional corporation tax for accounting periods ending between 30 June 2017 and 30 June 2021. The assessments totalled approximately £5.4 million. The tribunal noted that KDL’s appeal was being treated as the lead appeal for a number of related companies whose cases raised materially the same issues.
The central issue was the interpretation of Article 6 of the 2018 UK-Isle of Man Agreement and corresponding provisions of the earlier 1955 Agreement, as amended in 2016. Article 6 concerns income from immovable property.
The tribunal rejected KDL’s argument that Article 6 was limited to income arising from the use or exploitation of property. It held that the provision was not so restricted and that profits arising from the development and sale of land fell within Article 6.
This is the key point for practitioners dealing with cross-border property structures: the fact that profits are trading income rather than capital gains, and that the company has no UK permanent establishment, does not by itself prevent the UK from having taxing rights where the applicable treaty provisions allocate those rights to the UK.
The tribunal also considered Article 13, which deals with gains derived from the alienation of immovable property. It concluded that Article 13 was concerned with capital gains and did not apply to the trading profits in issue. The tribunal therefore did not accept KDL’s alternative route to treaty protection.
The judgment also records that, under section 5(2)(a) of the Corporation Tax Act 2009, a non-UK resident company carrying on a trade of dealing in or developing UK land falls within the UK corporation tax charge. Section 5(2A) provides that such a company is chargeable to corporation tax on all profits of that trade wherever arising.
The Upper Tribunal dismissed KDL’s appeal.
The tribunal said the wider financial implications were substantial. HMRC estimated that historic refund claims from similarly affected parties could reach up to £1 billion, with potential future lost revenue of up to £230 million a year. Those figures were recorded in the judgment as HMRC’s estimates in the context of the wider implications of the appeals.
For solicitors advising non-UK resident property developers, the decision underlines the need to examine both domestic corporation tax rules and the precise wording of the applicable double taxation agreement. The tribunal’s interpretation confirms that treaty provisions concerning income from immovable property can extend to trading profits generated from the development and sale of UK land, rather than being confined to income from simply using or exploiting property.