Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Company Taxation Manual

From
HM Revenue & Customs
Updated
, see all updates

AIFs: Property authorised investment funds (Property AIFs): breaches of conditions: breach of the balance of business condition

See also the information requirements at CTM48877.

Breaches of the balance of business condition by ‘start-up’ Property AIFs inthe first accounting period (regulation 69Z7(a) SI 2006/964)

The ‘balance of business conditions’ relate to the level of net income and assets of the company that are attributable to the tax exempt property income business (PIB) – see CTM48819 for full details of the conditions, including relaxation of the minimum levels of income and assets in a ‘start-up ’Property AIF’s first accounting period.

If a ‘start-up’ fund, which is a newly authorised fund, breaches the (40%) conditions relating to ‘the balance of business’ then the company will automatically cease to be within the regime at the end of its first accounting period.

Breaches of the balance of business condition by Property AIFs after the end of thefirst accounting period (regulation 69Z7(b) SI 2006/964)

Where a Property AIF breaches the balance of business condition after the end of its first accounting period (or where the 40% limit does not apply to it) then it may stay within the Property AIF regime provided:

  • the Property Investment Business is at least 50% of the Property AIF’s net income in the accounting period, and
  • the value of assets involved in the Property Investment Business is at least 50% of the total value of the assets held by the company at the end of the accounting period.

If the minimum levels above are not met then HMRC will issue a termination notice.

Note that HMRC will also issue a termination notice if there are three breaches of the balance of business condition (60% tests) in three different accounting periods within a 10 year period, beginning on the first day of the accounting period in which the manager becomes aware of the first breach.