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HMRC internal manual

Business Income Manual

Profits from a trade of dealing in or developing UK land: Relevant amount and relevant assets

Under the rules covering disposals of property deriving its value from land it is the ‘relevant amount’ which is subject to UK taxation. Section 356OE (5) CTA 2010 and Section 517E (5) ITA 2007 set out how to compute the relevant amount.

The ‘relevant amount’ is – on a just and reasonable apportionment – the amount of the profit or gain which is attributable to the relevant UK assets.

A ‘relevant UK asset’ is any UK land from which the property derives its value.

In all calculations, a just and reasonable basis should be used for apportionment.

Example 1

A company disposes of its shareholding in a company. The shares were purchased with the intention of dealing in the project land and making a profit from disposing of the shares which derives their value from the land.  The shares are worth £10m, £6m of the value relates to a block of flats based in the UK and £4m to a housing development outside the UK. In this instance, and assuming that the acquisition costs of the shares is nil, the block of flats is the relevant UK asset and the relevant amount is £6m. If consideration paid for the shares was £5m, and 60% of that cost related to the UK development, the relevant amount would be £3m (£6m less 60% of £5m).

Example 2

An individual purchases shares in a company which is developing a large housing estate.  The shares were valued at £10m and the value is derived entirely from UK Land. When the individual purchased the shares they intended to dispose of 40% of the shares to an individual who wished to purchase the land after development and hold on to the remaining 60% for the capital appreciation. In this instance the relevant UK assets are the £4m of land. The remaining £6m are investment assets, and not subject to the new legislation.