Knights loses treaty claim over UK property development profits

The Upper Tribunal has dismissed Knights Developments Limited’s appeal against corporation tax closure notices seeking approximately £5.4 millionNationalarchives on profits from developing and selling UK land. In its 25 August 2026 decision, the tribunal held that the profits fell within the UK–Isle of Man arrangements’ provisions for income from immovable property, allowing the United Kingdom to tax those profitsNationalarchives. HMRC accepted for this appeal that Knights did not have a UK permanent establishmentNationalarchives.

Knights was Isle of Man-resident and carried on a property development trade involving the Knights Wood site in Tunbridge Wells. The dispute covered accounting periods ending 30 June 2017 through 30 June 2021. It was agreed that the profits were trading income rather than capital gainsNationalarchives and fell within the domestic corporation tax charge, subject to the treaty issue.

The company argued that Article 6 covered income from using or exploiting land, but not profits realised on selling it. On its interpretation, neither Article 6 nor the capital-gains provision applied, leaving the business-profits article to allocate taxing rights exclusively to the Isle of Man without a UK permanent establishment. Both the amended 1955 arrangements and the 2018 agreement were in issue; the tribunal treated the relevant wording as materially the same.

The tribunal rejected that restriction.Nationalarchives Article 6(1) provides that income derived by a resident of one territory from immovable property situated in the other territory may be taxed in that other territory. The tribunal held that a developer who acquires, improves and sells land derives income from that property in a direct and substantial sense.Nationalarchives Article 6(3), referring to direct use, letting or use in another form, confirms applications of the general rule rather than exhaustively defining its scope. Article 6(4) confirms its application to enterprise income.

HMRC also advanced Article 13 as an alternative. The tribunal expressly treated its Article 13 discussion as obiter because Article 6 had already resolved the appeal. It said Article 13 concerned capital gains and would not extend to trading profits merely because they arose on a property disposal. The result therefore rests on Article 6, with the closure notices upheld.Nationalarchives

Knights was the lead appeal for related group companies whose appeals raise materially the same issues and had been stayed pending this decision.

The decision applies Article 6 of the 2018 UK–Isle of Man agreement and corresponding paragraph 3A of the amended 1955 arrangements, against the domestic charge in section 5 of the Corporation Tax Act 2009.