IFM21035 - Real Estate Investment Trust : Background: Key Concepts: Property Rental Business: Excluded Income

CTA 2010/S605 excludes certain types of activity from the definition of property rental business. A power is conferred on HMRC to use regulations to add more types of income to the excluded list, and to amend or remove classes already listed. The classes of excluded income are below. See IFM21025 for classes of excluded business.

Caravan sites

Where an operator of a caravan site provides sufficient other service as part of running the caravan site, such as a swimming pool or a shop, the activities can amount to a trade. In this case, rent from the pitches (and any other income from the caravan site) is excluded from the definition of property rental business.

Way leaves etc.

Rent arising from allowing electric lines, oil and gas pipelines can be chargeable to tax as income from property however, this kind of income is excluded from the definition of property rental business for REIT purposes.

Mobile phone etc. masts

Rent arising from allowing mobile phone masts, satellite dishes and similar structure to be sited on property can be chargeable to tax as income from property however, this kind of income is excluded from the definition of property rental business for REIT purposes. The same applies to rent from allowing a wind turbine to be sited on property.

Dividends from another UK-REIT

Holding shares in another UK REIT is not within the definition of property rental business. The shares do not count as qualifying assets of the property rental business. However dividends received that are distributions of tax-exempt income and gains of a UK-REIT are deemed to be profits of the property rental business (CTA2010/S549A) and the shares are included in assets for the balance of business test (CTA2010/S531).

Interest in limited liability partnership (LLP)

An LLP is transparent for tax purposes and is generally treated in the same way as an ordinary partnership, even though legally it is body corporate (CTA2009/S1273(1). This means that the members of an LLP are taxed on their share of partnership profits and not the LLP itself. Therefore the UK property business of an LLP is treated as property income of the partners.

This treatment continues to apply where the LLP no longer carries on business with a view to profit where the cessation is temporary or, there is a period of winding up following permanent cessation that is not connected with avoidance of tax or is not unduly prolonged. However, if an LLP is to be wound up by order of the court or a liquidator has been appointed then, it is treated as a company for tax purposes (CTA2009/S1273(4))

Where an LLP is treated as a company for tax purposes as described above, the partnership profits from property business no longer qualify as profits of a property rental business for a partner that is a UK-REIT.