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HMRC internal manual

Guidance on Real Estate Investment Trusts

Conditions and Tests: Balance of business Conditions: Condition 2 (asset test)

The asset test applies to the assets of the company. At the start of each accounting period, at least 75% of the assets of the company must be involved in the tax-exempt business. In some cases, a company can fail this test but remain in the regime - see GREIT07005.

Assets involved in the property rental business are those that would be assets if separate accounts were produced for C(tax-exempt), not solely assets that produce rent. For Group REITs please see GREIT12020

Condition 2 not met on joining the REIT regime

If a Notice is given specifying an accounting period from which Part 4 FA 2006 is to apply and the Balance of business asset test is not met at the beginning of that accounting period then the REIT can stay in the regime provided that the condition is met at the start of the following accounting period. In this circumstance the entry charge will be computed on the value of the assets at the end of the first accounting period (and credit given for any amount paid in respect of the assets held at the start of the accounting period). Finally the breach will not be taken into account when considering multiple breaches of REIT tests and conditions see GREIT07060.

Valuation of assets

The assets are valued using IAS, but no account is taken of liabilities secured either generally or specifically against any of the assets. See GREIT02040 for more detail.

Property under development

A company may acquire land or property and spend time developing it. Provided the intention at the outset is for the building to be retained as an investment property, the value of the land/ property is included in the assets of the property rental business even though no rental income has been generated by the property during the development period.

Void periods

Even though a property may be generating no rental income for a period, it will still count as an asset of the property rental business provided the intention is to retain it as an investment property and re-let it.