What is the property managing subsidiaries requirement under section 11A of ITEPA 2003?

Section 11A provides that a company fails the qualifying company test if it has a property managing subsidiary that is not a qualifying 90% subsidiary under paragraph 11B. A property managing subsidiary is one whose business consists wholly or mainly of holding or managing land, or property deriving its value from land.

What is a property managing subsidiary under section 11A?

A property managing subsidiary is a qualifying subsidiary whose business consists wholly or mainly of holding or managing land, or holding property that derives its value from land. Such subsidiaries must satisfy the stricter qualifying 90% subsidiary test in paragraph 11B, requiring the parent to hold at least 90% of its shares.

Why do property managing subsidiaries face a higher ownership threshold than ordinary qualifying subsidiaries?

Property managing subsidiaries face a higher 90% ownership threshold because land and property holdings can be used to circumvent the spirit of the qualifying company rules. The tighter control test ensures the parent company holds at least 90% of the subsidiary's shares and meets all conditions specified in paragraph 11B.

How is 'property deriving its value from land' defined for the purposes of section 11A?

Section 11A does not define this phrase directly but refers to section 188(3) of the Income Tax Act 2007. In broad terms, it covers any asset or interest whose value is primarily attributable to land, including shares in land-rich companies or certain rights connected to land.

Income Tax (Earnings and Pensions) Act 2003 section 11A

The property managing subsidiaries requirement

Section 11A sets out rules that can disqualify a company if it has a property managing subsidiary that does not meet the qualifying 90% subsidiary test.

A company fails the qualifying company test if it has a property managing subsidiary that is not a qualifying 90% subsidiary as defined in paragraph 11B
A property managing subsidiary is a qualifying subsidiary whose business consists wholly or mainly of holding or managing land, or property deriving its value from land
The definition of "property deriving its value from land" is taken from section 188(3) of the Income Tax Act 2007
This requirement ensures that any land or property-focused subsidiaries within the group meet a higher ownership threshold of 90%

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