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HMRC internal manual

Guidance on Real Estate Investment Trusts

Background: overview of the regime: single companies

To become a Real Estate Investment Trust, a company must meet certain conditions before giving notice to be a Real Estate Investment Trust (GREIT02010). The company must meet those and other conditions (GREIT02015) so long as it remains within the regime.

Failure to meet these conditions can result in the company leaving the regime. If the breaches are minor, transient and not too frequent, companies may remain in the regime, although in some cases, a tax charge is imposed on the company (see GREIT07000 onwards).

Other tests are applied to the company while it is in the regime (for example, the ‘interest cover’ test) but failing to pass these usually results in a tax charge, not removal from the regime.

Conditions for joining the regime

In order to give notice to join the regime, the company must meet two ‘Company conditions’:

  • it must be UK resident and,
  • it must not be an open-ended investment company.

These conditions are set out in section 106(2) to (4) FA 2006 - see GREIT02010 for more detail.

As well as the two ‘Company conditions’ necessary to give notice to join the regime, the company must meet two further ‘Company conditions’ throughout every accounting period it is in the regime - see GREIT02015. However if the REIT is not able to meet these conditions on the first day or throughout the first day it is in the regime it may still join the regime, for further details see GREIT03010.

Conditions for remaining in the regime

To remain in the regime, the company must meet two conditions in relation to the nature of its activities (Balance of Business conditions - see GREIT02065) and three conditions in relation to the nature of its property rental business (Tax-exempt business Conditions - see GREIT02020 onwards). Two of these conditions relate to the number and nature of the properties owned by the company, and the other is an obligation to distribute 90% of the income profits of the tax-exempt business as measured for tax purposes. See GREIT02050 for more detail.

Group REITs

For a group of companies to join and remain in the regime, the principal company of the group must meet the six Company conditions. The other conditions apply to the business of the group as a whole, and there are no specific obligations on any of the companies that are subsidiaries of the principal company.

There is an additional condition that applies to the principal company of a Group REIT - to prepare three sets of financial statements covering the property rental business, residual and tax-exempt business of the group - that does not in general apply to a single company UK-REIT. The exception is where there is a Joint Venture Look-Through notice in place between the single company UK-REIT and a corporate joint venture (see GREIT13000 onwards).