Danadara loses landmark tax appeal

HMRC issued assessments totalling around £5.4 million

A subsidiary of developer Dandara has lost a significant tax case that could have wider implications for businesses developing property in the UK.

The Upper Tribunal has dismissed an appeal by Knights Developments Limited, a company within the Dandara group, over profits made from developing and selling homes in Kent.

The company argued that, under the UK-Isle of Man double taxation agreement, its profits should only be taxable in the Isle of Man because it had no permanent establishment in the UK. 

However, HM Revenue and Customs disagreed and issued assessments totalling around £5.4 million.

Judges ruled that the profits were ‘income derived from immovable property’ under Article 6 of the tax agreement and could therefore be taxed in the UK. 

They concluded that profits from acquiring, developing and selling UK land have a direct connection to that land and are not excluded simply because they arise on sale rather than through rental income.

The tribunal noted the case is being treated as a lead appeal for a number of related companies and described the wider sums potentially at stake as substantial. 

HMRC told the court the outcome could affect historic claims and future tax revenues worth hundreds of millions of pounds.

The decision clarifies how OECD-style tax treaty provisions apply between the UK and Isle of Man and reinforces the UK’s right to tax profits generated from UK property developments, even where the developer is based offshore.