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HMRC internal manual

Guidance on Real Estate Investment Trusts

HM Revenue & Customs
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Conditions and Tests: Company Conditions: Conditions 1-3

Company Conditions 1 and 2 are the conditions the company must meet before giving notice that it wants to join the regime. They are set out in section 106(3) and (4) FA 2006. Failure to meet either of these conditions prevents a company from joining the regime. The conditions must be met at all times the company is in the regime, and failure to meet Conditions 1 and 2 results in a company leaving the regime automatically (section 130 FA 2006). The company does not have to meet Company Condition 3 before giving notice to join the regime. Thus a company whose shares are not currently listed on a recognised stock exchange is able to join the regime but it still is required that its shares are listed for at least part of the first day and the remainder of the accounting period specified in the section 109 notice (see GREIT03010).

Company Condition 1 - UK resident

This condition is that the company is resident in the UK and is not resident in another state for tax purposes.

For purposes of the UK-REIT legislation, ‘company’ takes the section 170(9) TCGA meaning (see CGM45150) which includes bodies incorporated under an act of law, such as the Companies Act 2006. Although that definition includes industrial and provident and friendly societies, other conditions of the regime mean they cannot be UK-REITs.

‘UK resident’ takes its normal tax meaning as set out in section 14 CTA 2009 (see ITH300 to 371 and CTM3373). As well as being resident in the UK under UK tax law, a company may be treated as resident of another state according to their laws. Such a ‘dual resident’ company would not meet Company Condition 1 unless there is a DTA in place between the UK and the other state, the DTA has a tie-break clause, and the tie-break clause allocates residence to the UK (see INTM154020).

Note that some double tax treaties (like the UK-Isle of Man (IoM) DTA) do not have tie-break clauses. This would mean that a company that was for instance, incorporated in the IoM (and thus IoM resident for IoM tax purposes) but had its management and control in London (and thus UK-resident for UK tax purposes) would fail Company Condition 1.

Conversely a company incorporated in Jersey may not fail Condition 1 as incorporation in Jersey does not necessarily mean that the company is Jersey resident.

Guidance on company residence can be found in the International manual at INTM120000 onwards.

Company Condition 2 - closed-ended

This condition is that the company is not an open-ended investment company (OEIC). Unlike when the term is used in other parts of the Taxes Acts, the meaning here is not limited to those within the section 235 and 236 Financial Services and Markets Act 2000 definition. It includes any vehicle with variable capital set up within or outside the UK.

Company Condition 3 - shares listed on a recognised stock exchange

The definition of ‘recognised stock exchange’ is at section 841 ICTA and a list of the exchanges that have been recognised by HMRC can be found at . The condition is that to be a UK-REIT, the shares must be ‘listed’, which means that the shares must appear on the Official List of the stock exchange in question. Being traded on a market platform operated by a recognised exchange does not meet this condition.

For example, a company whose shares are listed on the Daily Official List of the London Stock Exchange (LSE) (often referred to as a full market listing) does meet Condition 3. A company whose shares are traded on AIM does not meet this condition, unless their shares are also on the Official List of another recognised stock exchange. This is because AIM is a market platform run by the LSE, and shares that are traded on AIM do not appear on the Official List. The same applies to shares quoted on OFEX - Condition 3 is not met.

Note that other recognised exchanges also operate junior markets and trading platforms for shares that do not appear on their own Official Lists. If in doubt about the status of a market or quotation, please see the information on Recognised Stock Exchanges on the HMRC website as stated above. This website also gives a telephone number for further information.

Group REITs

Company Conditions 1 and 2 must be met by the principal company of a Group REIT (paragraph 5(1) Schedule 17 FA 2006) at the time it gives notice that the group of which it is principal company wants to join the regime. The same rules about breaching the conditions as described above apply also for a Group REIT.