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HMRC internal manual

Guidance on Real Estate Investment Trusts

From
HM Revenue & Customs
Updated
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Entry to the regime: notice to join

If a company/group decides it wants to join the regime, the company/principal company of a group must provide a notice to HM Revenue & Customs specifying the accounting period from the beginning of which it wants the Real Estate Investment Trust legislation to apply (sections 523 and 524 CTA 2010 (section 109(1) FA 2006)). If the relevant conditions are met, the regime will apply to the company/group from the first day of the accounting period specified in the notice (and not on the day the notice is given).

The notice should be sent to the tax office that normally deals with the company and a copy sent to:

Mike Luty
HMRC Leeds Large Business Service
I Munroe Court
White Rose Office Park
LEEDS LS11 0EA

‘Accounting period’ takes its normal CT meaning, so the date specified in the notice need not be by reference to the company’s normal accounting reference date. For example, a company draws up its accounts to 31 March, but wants to join the regime with effect from 1 January 2012. The company need not change its accounting reference date, but the accounts to 31 March 2012 will be divided into two accounting periods for CT purposes. One will run from 1 April to 31 December 2011, and cover all the pre-REIT activities of the company. The other will cover 1 January to 31 March 2012. For this period, two separate computations will be required, one covering the property rental activities of the company; the other dealing with the remainder.

Conditions to be met to give notice

To give notice, the company has to meet the Company Conditions A and B of section 528 CTA 2010. These are that:

  • Condition A - the company must be a UK company (as defined in section 521 CTA 2010) and
  • Condition B - the company is not an open-ended investment company.

For more detail on Company Conditions A and B, see GREIT02010.

Contents of the notice

The notice must be given in writing, and it must be given before the start of the accounting period from which the company/principal company of a group wants to join the regime.

The notice must be accompanied by a statement that the company/principal company of a group reasonably expects all the Company Conditions in section 528 CTA 2010 will be satisfied for the accounting period specified in the notice. The other four conditions are:

  • Condition C - the company’s/principal company of a group REIT’s shares must be listed on a recognised stock exchange,
  • Condition D - the company/principal company of a group REIT must not be ‘close’,
  • Condition E - the only shares it can have in issue are: - a single class of ordinary share capital and various classes of permitted relevant fixed rate preference shares, and
  • Condition F - it is not party to any loans where the rates are dependent on the profits of the business.

For more detail on Company Condition C see GREIT02010 and for Conditions D to F, see GREIT02015.

Initial failure of listing on a recognised stock exchange and ‘close’ company conditions

Where sections 525(2)-(8) CTA 2010 apply (see GREIT02015)) the statement required will provide that the company/principal company of a group REIT reasonably expects Company Conditions A, B, E and F to be satisfied for the accounting period specified in the notice.

Where a company/principal company’s shares are not listed before giving notice to join the regime, the REIT may still be entitled to join provided that it is able to provide the statement that it reasonably expects to satisfy Company Condition C for at least a part of the first day of the accounting period specified and the remainder of that accounting period as set out in section 525 (4) CTA 2010.

Where the company/principal company does not meet the ‘not close’ requirement in Company Condition D in section 528(4) CTA 2010 on the first day of the accounting period, the company/principal company may still qualify provided that it is able to confirm in the statement that the company/principal company reasonably expects Company Condition D to be satisfied for the accounting period specified apart from the first day as set out in section 525 (7) CTA 2010.

Group REITs - additional requirement

For a group which becomes a REIT there is an additional requirement, which is that the group must prepare and submit financial statements to HMRC as set out in section 527(2)(e) CTA 2010 for each accounting period.