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HMRC internal manual

Business Income Manual

Transactions in land: Exemptions: Profit chargeable as trading income

S766 Income Tax Act 2007, S828 Corporation Tax Act 2010

Provided certain conditions are satisfied, the gain on company shares where the gain is derived from value from land is exempt from the transactions in land anti-avoidance rules (see BIM60305).

The exemption applies provided all the following conditions are met:

  • the gain is obtained by the holder of the shares,
  • the gain arises as a result of the holder of the shares (or a person connected to such a person) acquiring, holding or developing land,
  • the gain arises on a disposal of shares either:

    • in a company which holds the land as trading stock, or
    • in a company which directly or indirectly owns at least 90% of the ordinary share capital of another company which holds land as trading stock,
  • all the land held by such a company is disposed of by that company in the normal course of its trade, and
  • all the land held by such a company is disposed of in such a way that all opportunity of profit in respect of the land arises to the company.

However, this exemption does not apply where there is an ‘arrangement’ or ‘scheme’ which enables the gain to be realised indirectly or via a series of transactions.

Need for a forward note

At the time of the disposal of the shares, the question of whether this exemption applies is dependent on the fate of the land owned by the company. A forward note should therefore be made to:

  • periodically check what has become of the land, and
  • determine whether a protective assessment should be made as assessing time limits approach.

Any decision in relation to a protective assessment should be made in conjunction with CTISA (Technical).

In the event that an assessment is required, it is made on the shareholder who has disposed of the shares.

For other exemptions from the transactions in land rules, see BIM60360 and BIM60375.