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HMRC internal manual

Guidance on Real Estate Investment Trusts

Background: key concepts: property rental business

For the purposes of the UK-REIT regime, property rental business is defined at section 104 FA 2006 as:

business that is or forms part of

    1. a UK property business (within the meaning of section 205 CTA 2009), or
      1. an overseas property business (within the meaning of section 206 CTA 2009)

subject to specified exclusions listed in Schedule 16 FA 2006.

This limits ‘property rental business’ to the generation of income from land etc for rent (as follows from the definition in section 207 CTA 2009 ) and thus excludes income arising as a result of the occupation of land, which is not chargeable as property business income.

For example, farming or running a hotel are chargeable as trades so cannot be within the definition of ‘property rental business’. For more detail on income or business that is excluded because it is not property business ), see GREIT01025.

Some types of business or income, which although chargeable to tax as property income , are nonetheless, excluded from the definition of property rental business, such as rent from the siting of an oil pipeline. These are listed in Schedule 16 FA 2006 (see GREIT01025 onwards for details).

A property business with ‘tied premises’ as defined in section 42 CTA 2009 can be included within the definition of property business in section 104 FA 2006 as section 104(3) ignores the requirement that income and expenses from the property business of ‘tied premises’ are treated as income and expenses of the trade.

‘Qualifying’ or ‘ring fence’ activities

Activities which come within the section 104 definition of ‘property rental business’ are generally referred to as ‘qualifying’ activities. Only when the business also qualifies as tax-exempt, should the activities be referred to as being ‘ring fence’ activities.

‘Property rental business’ for Group REITs

For single company UK-REITs, the property rental business and the ring fence activities are one and the same. For a group of companies that is a UK-REIT, the two may not be. The term ‘property rental business’ for a group can include overseas property and property held by non-resident subsidiaries. Such income is only part of the ‘ring fence’ activities of the group and exempted from UK tax by Part 4 of FA 2006 if those activities are within the charge to UK taxation (e.g. a non-resident subsidiary which holds land in the UK.