Overseas property developers: no UK permanent establishment does not necessarily mean no UK tax

A recent Upper Tribunal case, Knights Developments Ltd v HMRC [2026] UKUT 329 (TCC), is an important reminder for overseas businesses developing property in the UK.

The key message is straightforward:

An overseas company can still be taxable in the UK on profits from developing and selling UK property, even if it has no UK permanent establishment.

What happened?

Knights Developments Ltd was an Isle of Man company within the Dandara property development group. Its business involved buying land, developing it and selling the completed properties.

The case concerned a residential development at Knights Wood in Tunbridge Wells. Knights Developments bought the land, treated it as trading stock and made profits from selling the completed homes.

The physical development work was carried out by another group company and subcontractors. The key strategic and commercial decisions remained with Knights Developments, mainly in the Isle of Man. HMRC accepted that Knights Developments itself did not have a permanent establishment in the UK.

Why did the company think it should not pay UK tax?

The company accepted that, under normal UK tax rules, its development profits would be taxable in the UK.

However, it argued that the tax agreement between the UK and the Isle of Man protected it from UK tax because it did not have a UK permanent establishment. In simple terms, it believed that because the business was based offshore and did not have a taxable business presence in the UK, its trading profits should only be taxed in the Isle of Man.

Why did the Tribunal disagree?

The Tribunal said that this was too narrow a view.

The tax agreement did not only contain rules about business profits. It also contained separate rules dealing specifically with income connected with land and buildings.

The Tribunal decided that the profits from buying, developing and selling the UK land were sufficiently connected with UK property to fall within those property-specific rules. That meant the UK was entitled to tax the profits, despite the fact that the company had no UK permanent establishment.

The Tribunal also noted that the company had actively used the land in the course of its development business: it obtained planning permission, funded and carried out the development and marketed the completed properties for sale. The land was therefore an integral part of the process by which the profits were generated.

What does this mean for overseas developers?

The decision is particularly relevant to overseas companies that develop UK land while keeping their main business operations and decision-making outside the UK. The main point is that having no UK office or permanent establishment does not automatically keep UK property development profits outside the UK tax net.

Where an overseas company develops and sells UK land, the relevant tax agreement needs to be reviewed carefully. Specific rules dealing with income from land may give the UK taxing rights even where the normal rules for business profits would appear to point elsewhere.

The case is also a reminder that it is important to look at both:

• the UK domestic tax rules; and
• any applicable double tax agreement.

A double tax agreement does not automatically override the UK tax charge simply because the overseas company has no permanent establishment here.

Practical takeaway

Overseas groups involved in UK property development should review their UK tax position at an early stage, particularly if their current treatment is based on the assumption that an offshore company with no UK permanent establishment will not be subject to UK tax.

The decision in Knights Developments shows that this assumption may be wrong where the profits arise directly from the development and sale of UK land.

In short: no UK permanent establishment does not necessarily mean no UK tax.

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