The pre-FA-2016 developer planning toolkit included a structural move that became known in commentary as fragmentation. Place the land in one entity, the development services in another, the profit-recipient in a third, and the eventual share-sale or land-sale exit could be argued to fall outside the main-purpose tests at the level of each separate entity. None of LandCo, DevCo, or ProfitCo, looked at on its own, had the full bundle of acquisition-plus-development-plus-disposal activity that a single integrated developer would have. The cumulative effect was that the regime's main-purpose tests were harder to engage at the level of any one entity.

CTA 2010 section 356OH and ITA 2007 section 517H, both inserted by Finance Act 2016, defeat that move. The mechanic is direct attribution: relevant contributions made by connected or related persons are treated as activities of the chargeable person for the main-purpose evaluation under section 356OB and section 517B. The fragmentation is undone for tax purposes; the regime's tests are applied to the combined activity. This page works the verbatim attribution mechanic, the connected-and-related two-pathway test, the relevant-contribution insignificance threshold, the tax-neutrality provision for reimbursements, the relationship with the wider anti-avoidance rule at section 356OK, and the JV / landowner-developer-funder structures that are commonly affected.

The verbatim attribution mechanic

Section 356OH operates by treating the activities of R (a connected or related person making a relevant contribution) as activities of C (the chargeable person) for the purpose of applying Part 8ZB. The operative language treats the profit or gain on disposal as if R were not a distinct person from C, with the consequence that everything done by R or in relation to R is treated as done by C or in relation to C. Section 517H follows the same structure for individuals.

The attribution mechanic does three things. First, it brings R's contributions into the main-purpose evaluation at the chargeable-person level: R's purpose in undertaking the contribution becomes evidence of C's main purpose in the wider arrangement. Second, it brings R's profit into the chargeable-person's trading profit computation where the attribution applies: the tax bill flows to the chargeable person on the combined activity. Third, it triggers the tax-neutrality provision: reimbursements between C and R for the resulting tax liability are not taken into account in computing either party's profits, and the reimbursement is not a distribution for corporation tax purposes.

The general pillar on the transactions in UK land regime, covering the four-conditions framework, the symmetric corporate/individual architecture, and the indirect-disposals overlay, sits at transactions in UK land: the four-conditions test.

Section 356OH applies where R and C are connected (under CTA 2010 sections 1122 and 1123) or related (under CTA 2010 section 356OT). The two pathways catch different relationships.

The connected-persons test imports the standard CTA 2010 section 1122 definition. The framework includes individual-to-individual relationships (spouse, civil partner, lineal ascendants and descendants, siblings and the spouses of siblings, and various other family chains under section 1122(5)) and corporate relationships (a company is connected with another company if both are under the control of the same person or persons, and a company is connected with the persons who control it under section 1122(2)). Trustee, partnership, and group-company connections are added in sections 1122(7) and 1123. The test is structural and familiar from many other CTA 2010 provisions; sessions writing on it can use the standard connected-persons framework.

The related-persons test at section 356OT is wider and more arrangement-focused. The wording reaches persons who are party to or concerned in the same arrangement, or whose activities are coordinated in relation to the same project. Two unconnected developers acting together under a shareholders' agreement or under a JV deed may be related under section 356OT even though they are not connected under section 1122. The practical reach of section 356OT is fact-sensitive; HMRC's working position is that any meaningful commercial coordination on a specific UK land project engages the related-persons test.

Sessions writing on JV and partnership structures should run both pathways. A JV deed between two unconnected developers, two pension funds, or two family offices may sit outside the section 1122 connected-persons test but inside the section 356OT related-persons test where the JV's substance is a coordinated UK-land development. The two pathways are alternatives; either one engages the section 356OH attribution mechanic.

The relevant-contribution insignificance threshold

Not every contribution by a connected or related person triggers attribution. Section 356OH only attributes contributions that are relevant. A contribution counts as relevant unless the profit made or to be made by R in respect of the contribution is insignificant having regard to the size of the project. The statutory wording places the burden on the taxpayer to demonstrate insignificance where the contribution is potentially within scope.

HMRC's working position, supported by the Business Income Manual, treats the insignificance test as a quantitative-and-qualitative judgement. A fixed fee at market rate for a discrete service (planning consultancy, legal review, single-stream professional fees), with no profit-share, no equity interest, and no contingent return, is generally below the threshold. A profit-share arrangement, an equity stake in the developer entity, a contingent fee tied to the project's success, or any structure that pools returns with the project's profit profile is above the threshold and engages attribution.

The threshold matters operationally because most JV structures involve at least some pooling of returns. A landowner contributing land for an equity share, a funder contributing capital for a profit-share, or a developer contributing services for a contingent management fee are all above the insignificance threshold. The genuinely arm's-length single-fee service contract is what sits below it; pure-commercial JV arrangements rarely do.

The tax-neutrality provision for reimbursements

Where section 356OH attribution produces a tax liability at the chargeable-person level, the related entities are commonly required (under deed-level arrangements) to reimburse the chargeable person for the proportionate tax cost. Without a specific statutory provision, those reimbursements would themselves be income to the receiving party (a CT-taxable receipt for a corporate chargeable person, an income-tax receipt for an individual), creating a double-tax outcome.

The statute addresses this directly. Reimbursements between R and C for the tax liability arising from the section 356OH attribution are not taken into account in computing the profits or losses of either party, and they are not regarded as distributions for corporation tax purposes. The neutrality provision is automatic and does not require an election; the deed-level reimbursement clause flows through without additional tax friction.

Sessions writing on multi-entity structures should ensure the deed-level reimbursement clauses are drafted to fall within the section 356OH wording. Reimbursements for general project costs, deal expenses, or fee-pooling outside the specific tax-liability scope of section 356OH do not benefit from the neutrality provision; the wording is targeted at the section 356OH attribution tax-liability cost.

How section 356OH differs from section 356OK

The transactions in UK land regime has two distinct anti-avoidance rules that sometimes get conflated in commentary. Section 356OH attributes the activities of connected or related persons to the chargeable person for the main-purpose evaluation. Section 356OK is a wider anti-avoidance rule that catches arrangements designed to avoid the application of Part 8ZB more generally.

The two operate at different levels. Section 356OH adjusts the inputs to the section 356OB four-conditions test (by attributing activities back to the chargeable person). Section 356OK provides HMRC with a separate hook to challenge arrangements that technically fall outside section 356OH but achieve the same defeat-the-regime effect. Examples of structures that might engage section 356OK but not section 356OH include: arrangements with truly unconnected and unrelated third parties (so section 356OH does not apply) but with a clear anti-Part-8ZB design purpose; structures that use timing manipulation to fall outside the six-month chargeable-person window; and structures that exploit specific Part 8ZB carve-outs in unintended ways.

Sessions writing on multi-entity structures need to keep both rules in mind. Designing around section 356OH (by using truly arm's-length parties, fixed-fee contracts, no profit-share) is not by itself a complete defence; section 356OK can still engage where the structure has an anti-regime purpose. The defensive posture is that the structure should be commercially explicable on its own terms, with the section 356OH/356OK analysis as confirmation rather than as the sole rationale.

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Worked example: a landowner-developer-funder JV with attribution

Take an anonymised JV structure. A landowner contributes a development site valued at £4 million to a JV vehicle; a developer contributes development services with a target value of £1.5 million plus a 25 percent share of residual profit; a funder contributes £3 million of capital for a 12 percent preference return plus a 25 percent share of residual profit. The JV completes the development and sells the units in a single tax year for £10 million; total project cost is £7 million; residual profit is £3 million. The landowner takes 50 percent of residual (£1.5 million), the developer takes 25 percent (£0.75 million), and the funder takes 25 percent (£0.75 million).

Without section 356OH, each participant would compute its own tax position on its own profit slice. The landowner might argue investment treatment on the land equity stake; the developer would compute trading profit on the development management fee plus its profit-share; the funder would treat its preference return as interest income and its profit-share as a chargeable gain or trading profit depending on its underlying business.

Section 356OH attributes the developer's and funder's relevant contributions to the chargeable person (typically the JV entity as the disposing person, though identification depends on the deed-level structure). The JV entity's main-purpose evaluation is then conducted on the combined contributions: land contribution, development services, capital and risk. The combined activity is plainly developer-side trading activity; section 356OB Condition D is satisfied; the JV entity's profit on the unit sales is trading profit at the prevailing corporation tax rate (with possible RPDT layered on if group profits exceed £25 million).

The deed-level reimbursement provisions then flow under the section 356OH tax-neutrality wording. If the JV entity bears the trading-profit tax on the combined activity and is reimbursed by the landowner, developer and funder for their proportionate share of that tax, the reimbursements are tax-neutral: no double-tax cost on the receiving party. The structural lesson is that the section 356OH analysis affects the entity-level tax computation and the deed-level commercial allocation between participants; both need to be designed together.

Typical fragmentation patterns and the structural traps

Three multi-entity fact patterns recur in developer-side planning. Each engages section 356OH on the right facts.

Pattern 1: the landowner-developer-funder JV. A landowner contributes the development site to a JV entity in exchange for an equity stake; a developer contributes development services for a management fee plus a profit-share; a funder contributes capital for a preference return plus a share of the residual. The JV holds the land, executes the development, and sells the completed units. The three JV participants are related under section 356OT (they are concerned in the same arrangement) regardless of whether they are connected under section 1122. The relevant contributions are above the insignificance threshold (equity, profit-share, contingent fees). Section 356OH attributes the developer's and funder's activities to the landowner JV entity for the main-purpose evaluation.

Pattern 2: the multi-SPV developer group. A corporate developer parent uses separate SPVs for the land-holding, the construction services, and the profit-recipient finance arm. The land-holding SPV holds the development site; the construction SPV invoices the land-holding SPV for development services at a transfer price; the finance SPV provides intra-group funding and receives interest. All three SPVs are common-control connected under section 1122(2). Section 356OH attributes the construction SPV's development activities to the land-holding SPV (the chargeable person on the eventual disposal of the developed land), and the finance SPV's contributions where they meet the relevance threshold.

Pattern 3: the offshore service-co structure. A non-resident developer holds the UK development land in a UK PropCo, with development services contracted out to a non-resident service-co (commonly in a low-tax jurisdiction) and a profit-share arrangement. The non-resident service-co invoices the UK PropCo at a transfer price; the residual profit accumulates offshore. Both entities are common-control connected through the non-resident parent. Section 356OH attributes the offshore service-co's development activities to the UK PropCo on the UK land disposal. The non-resident scope of section 356OG ensures the UK PropCo is within scope regardless of UK residence; section 356OH then attributes the offshore service-co's activities into the UK PropCo's main-purpose evaluation.

HMRC enquiry pattern on section 356OH challenges

The post-FA-2016 enquiry record on section 356OH is still developing. Two structural features of HMRC's working approach have emerged in commentary and in early tribunal correspondence.

First, HMRC tends to focus on the connected-or-related two-pathway test before assessing the relevant-contribution threshold. The opening enquiry letter typically asks for documentation on the corporate, partnership, and family relationships between the participants, with section 1122 and section 356OT analysis driven from the entity-relationship map. Where the participants are pure-commercial arm's-length parties with no family or common-control links, the section 1122 test produces a clean negative answer; the section 356OT test then becomes the operative pathway.

Second, the relevant-contribution insignificance test is HMRC's secondary line of attack. Where the connected-or-related test is engaged, HMRC examines each participant's contribution against the project size. Fixed-fee contracts at market rates are typically conceded as below the threshold; profit-share and equity arrangements are typically conceded as above. The middle ground (contingent fees tied to milestones, equity stakes below 5 percent, performance bonuses) is where the cases tend to settle.

Sessions writing on existing structures facing potential enquiry should run both pathways from the entity-relationship map and the contribution-value map. The documentary record for each participant's contribution (service contracts, equity registers, profit-share waterfalls in the JV deed) is the operative evidence; informal arrangements not captured in the documentation are harder to defend.

Practical takeaways for multi-entity developer structures

For sessions advising on the design of new JV, partnership, or multi-SPV developer structures, the operational checklist runs:

  • Run the connected-and-related two-pathway test early. The section 1122 connected-persons test is structural and predictable; the section 356OT related-persons test is wider and fact-sensitive. Both pathways need to be assessed at the structure-design stage.
  • Assess each participant's relevant contribution against the insignificance threshold. Fixed-fee service contracts at market rates are below; equity stakes and profit-share arrangements are above. The threshold determines whether the activity is attributed.
  • Model the section 356OH attribution outcome at heads-of-terms. The combined main-purpose evaluation may produce a different result than the per-entity evaluation; the deal structure should reflect this from the start.
  • Draft the deed-level reimbursement clauses for section 356OH neutrality. The wording should match the statutory scope so the neutrality provision applies automatically.
  • Document the commercial rationale separately from the tax analysis. Section 356OK's wider anti-avoidance reach is harder to engage where the structure has a clear commercial purpose independent of tax planning.
  • For existing structures, audit the connected-and-related relationships periodically. Acquisitions, restructures, and family events can shift the section 1122 or section 356OT analysis without anyone noticing until an enquiry.

The Condition C trading-stock interaction at Condition C trading stock and section 162 incorporation relief denial, the indirect-disposals overlay at indirect disposals through property-rich entities, and the partnership-side mechanics at property partnership trading vs investment all interact with section 356OH on multi-entity structures. Sessions writing on JV deeds should read these alongside the section 356OH analysis.

For sessions writing on offshore service-co arrangements specifically, the non-resident scope at section 356OG and the offshore-developer planning closure sit at non-resident developer UK tax scope. The section 356OH attribution mechanic combined with the residence-neutral chargeable-person rule produces a structurally robust catch on multi-jurisdiction developer structures: the UK PropCo cannot avoid the regime by routing development services or profit-share returns through a connected entity in a low-tax jurisdiction, because section 356OH attributes those activities back into the UK chargeable-person's main-purpose evaluation regardless of the entity's location.