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HMRC internal manual

Guidance on Real Estate Investment Trusts

HM Revenue & Customs
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Entry to the regime: overview

The UK-REIT regime is elective. For the tax exemptions to apply to its property rental business, a REIT must meet the necessary conditions but must also give notice that it wants the UK-REIT rules to apply to it, its distributions and investors who receive those distributions. Note that the regime applies to the REIT from the date specified in the notice, and not from the day the notice is given.

Where the principal company of a group gives notice to be a group REIT, all 75% subsidiaries (as defined in section 606(1) CTA 2010) are automatically included within the REIT regime.

On joining the regime, a line is drawn between the property rental activities of the REIT before entering the regime, and those that are carried on and exempt from tax while the REIT is within the regime. All the assets that move into the property rental business are treated as though they have been sold by the REIT just before it joins the regime, and immediately reacquired by the property rental business after it joins.

This sale and reacquisition is deemed to take place at market value but does not give rise to a chargeable gain (or allowable loss). For capital allowance purposes, the transaction is deemed to take place at a value that results in no balancing charges or allowances - and ‘stand-in-shoes’ treatment applies to the ‘new’ owner.

An Entry Charge is payable at 2% of the market value of property assets that are moved to the property rental business. This is payable at the same time as CT due for the first accounting period that the REIT is in the regime and where the quarterly instalment payment regime applies the entry charge is spread on a similar basis. A REIT joining the regime may choose to pay the Entry Charge in four yearly instalments, in which case the charge is increased slightly to take account of the time value of money.

The REIT remains in the regime until either a notice to withdraw from the regime is given by the REIT or by HMRC or the REIT breaches a qualifying condition in such a way that the regime ceases to apply. When a REIT demerges into two REITs sections 558 or 559 CTA 2010 apply see GREIT06010.