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HMRC internal manual

Business Income Manual

Profits from a trade of dealing in or developing UK land: Anti-fragmentation: Relevant Contribution

The anti-fragmentation rules address the risk that a developer carrying on a trade of dealing in or developing UK land could enter into arrangements to move profits to a connected party, where the connected party is not chargeable to UK tax on the profit that they realise.  This could, for example, arise where a firm supplying professional services is allocated a share of the profit from the disposal of the land.  It could also arise where interest is paid to a connected party based to any extent on sharing profits from the development.

The anti-fragmentation rules apply where there is a relevant contribution. The definition of relevant contribution is wide and means any kind of contribution including but not limited to:

  • The provision of professional or other services.
  • A financial contribution (including the assumption of a risk).


All contributions are considered to be relevant contributions unless they are insignificant when considered in relation to the size of the project.

The significance of a contribution in relation to the size of a project will depend on the facts and circumstances of each instance*. *

One situation where a contribution is likely to be considered insignificant is if it is a Low Value Added Service (LVAS). This is because the mark-up for a LVAS is typically low, so the cost is not likely to be material in respect of the project.

Example 1

Company X carries on a trade of dealing in or developing UK land. It receives admin services from a group company and pays a mark-up of 2% on the costs. In this instance the contribution would be regarded as insignificant and the fragmentation rules would not apply.

Example 2

Company Y carries on a trade of dealing in or developing UK land. A group company (Company Z) designs all of the buildings. Company Y pays Company Z 10% of the profits for the provision of architectural services. In this instance the profit made by Y would not be regarded as insignificant with regards to the size of the project and the fragmentation rules will apply.

Example 3

Company A carries on a trade of dealing in or developing UK land. The group has an intra group service centre run by Company B which provides IT and HR services. The costs which relate to Company A are recharged by Company B. In this instance any profit in Company B is likely to be minimal so the contribution will be insignificant.