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HMRC internal manual

Guidance on Real Estate Investment Trusts

Property rental income: capital allowances: general



The income of the property rental business is based on the computation of profits for the purposes of taxing a property business. One element in arriving at the profit is capital allowances, and normally, a company has to make a claim for the amount of capital allowances it wants to deduct in the period (section 3(1) CAA 2001).


The section 3(1) CAA requirement to claim and the choice of how much to claim are set aside in calculating the income of the property rental business (section 599(8) CTA 2010). Instead, the maximum allowances available under CAA must be taken into account in the calculation of the profits of the property rental business.

This means that a capital allowances ‘shadow’ regime operates within the property rental business. The result of this is that capital allowances are taken into account in calculating the profits of the property rental business and thus have the effect of reducing the property income distribution to, and so also the tax liability of, shareholders. Shareholders receive a distribution from the profits of the property rental business after capital allowances: there are no provisions that allow shareholders to access directly capital allowances on property rental business assets.

Otherwise, apart from some modifications when the company joins or leaves the regime, and when assets move from between the property rental and residual businesses (see GREIT04015), all the normal capital allowance rules apply to the property rental business. For more information see the Capital Allowances Manual. Apart from on joining and leaving the regime, and on transfers between the property rental and residual businesses, this includes the ability to make section 198 and section 199 CAA 2001 elections to apportion the sale price between fixtures and property when a property is disposed of or acquired by the company. See GREIT03015 for how to obtain a tax reference for capital allowance purposes.

Opening book values

When a company joins the regime, the property rental business takes over the capital allowance position of the company’s property rental business as at the end of the accounting period before it joined, as set out in section 537 CTA 2010 (section 111 FA 2006). This is on a ‘stand-in-shoes’ basis, at values that result in no balancing charge or allowance arising to the company, and provides the opening values for property rental business assets on which ‘shadow’ capital allowances must be calculated.

This specification of the transfer values in section 537 CTA 2010 means that section 198 and section 199 CAA elections cannot be made on entry to the regime.

Dual purpose assets

If plant or machinery is used partly for the purposes of the property rental business and partly for other activities, the qualifying expenditure should be apportioned between the two on a reasonable basis. This follows partly from the concept within the UK-REIT regime of references to assets being also references to part of an asset (section 608(1)) and partly from section 599(7) CTA 2010 , which apportions dual-purpose expenditure on a reasonable basis.

Other activities of the company

Other than rules that determine allowances and charges when assets are transferred between the property rental and residual businesses (see GREIT04015), there are no special capital allowances rules that apply to the residual part of the company. When the company joins the regime, there is no deemed sale and reacquisition of residual business assets, and thus no special rules to determine carry forward etc values: similarly if the company leaves the regime.

Enhanced Capital Allowances

A REIT company can claim enhanced capital allowances but is not able to claim the enhanced capital allowances credit.

Land Remediation Relief

A REIT company is able to claim Land Remediation relief and Land Remediation tax credit. See the Corporate Intangibles and Research & Development manual CIRD60000 onwards for the conditions to be met for the relief and credit.

Group REITs

These rules apply to each member of a Group REIT to the extent that it carries on a qualifying property rental business.