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HMRC internal manual

Business Income Manual

Profits from a trade of dealing in or developing UK land: Calculation of profit or gain

After it has been determined that the profits should be treated as trading profits, Section 356OI CTA 2010 and Section 517I ITA 2007 determine how the profit or loss from the disposal should be calculated.

The profits should be calculated in accordance with the normal principles for calculating profits of a trade. These principles can be found at Part 2 ITTOIA 2005 for income tax and Part 3 CTA 2009 for corporation tax. 

Where a deduction would be allowable or receipt taxable, if a UK resident business was carrying out the trade, then the same should apply to a non-resident which has a trade of dealing in or developing UK land.

Where a non-resident company comes within the scope of corporation tax, stock should be recognised at ‘carrying value’.. Where an asset is not held as a trading asset the asset should also be brought in at cost. The deeming provisions in Section 41 CTA 2009 are not sufficient to invoke the provisions of Section 158/160 CTA 2009, in order to determine the opening value of stock.

The trading profits of the development activity should be calculated based on UK GAAP or any other acceptable GAAP.

Where the non-resident business disposes of UK land as only part of a trade, or if it carries on more than one trade, the profit or loss should be apportioned between the UK land trade and the other trade on a just and reasonable basis.

Where there was not a permanent establishment in the UK prior to the commencement of the new legislation, Section 61 CTA 2009 will apply and allow pre-trading expenses. If the conditions of Section 61 CTA 2009 are met, expenses incurred not more than 7 years before the company comes into charge of the new legislation will be permissible as a deduction. For this part, an election under Section 330 CTA 2009 is not required for loan relationship debits, the debit will be permissible so long as it falls within Section 61 CTA 2009.

Where there was a permanent establishment in the UK prior to the commencement of the new legislation the ‘Pre trading expenses’ rules in [Section 79 of FA 2016] will apply. 

No equivalent rules concerning pre-trading expenses are necessary for income tax.


Carried forward trade losses will be available for use in the normal way. If a company was carrying on a trade of developing UK land - prior to enactment of the new legislation on 5 July 2016 - and was within the charge to CT by virtue of having a permanent establishment in the UK, Section 45 CTA 2010 applies, as the company will be carrying on the same trade [albeit not within the charge to CT under Section 5B CTA 2009]. Therefore, trading losses that accrued before 5 July 2016 will continue to be available to offset against future income of the same trade under Section 45 CTA 2010.

Group Relief

Group relief will be permissible in the normal way. Whilst Section 134 CTA 2010 has a “UK related” condition, Section 1141(1) CTA 2010 provides that a company has a permanent establishment in a territory if it has a fixed place of business there through which the business of the company is wholly, or partly carried on. Section 1141(2)(h) provides that a fixed place of business includes a building site or construction or installation project. HMRC’s position is that most UK property development sites will fall under Section 1141(2)(h) CTA 2010 and meet the “UK related” condition at Section 134 CTA 2010.