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HMRC internal manual

Guidance on Real Estate Investment Trusts

HM Revenue & Customs
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Property rental business income: Property rental income/ trading income borderline: specific


During the consultation period leading up to the UK-REIT legislation and its passage through Parliament, several areas of concern around the property rental business/trading income borderline were raised. Some of these are discussed below, but see also PIM4300 for tied premises, hotels and the nature of ancillary services that are normally provided to tenants. Further detail from the trading perspective can be found at BIM41000. FA 2009 introduced changes to how ‘tied premises’ can now be part of a REIT property rental business, guidance on this is at GREIT01015.

Car parks

The UK-REIT legislation neither permits within the property rental business nor rules out from it profits arising from a car park - it is a question of fact depending on what is provided and how. If they have been dealt with as profits from a property business before a company became a UK-REIT, there is nothing in the UK-REIT rules that would change that treatment.

The rent attributable to a car park attached to an office block that is leased as part and parcel of the office block will generally be property rental business income, and qualify as property rental business. Fees paid to park on an empty field adjacent to a pop festival will generally be property rental business income as well.

A free car park attached to a shopping centre that is used mainly by shoppers would generally count as part of the shopping centre property and would not prevent the shopping centre counting as a qualifying property for the property tests in the Property rental business Conditions, or the Balance of Business Conditions.

If fees are charged for a car park attached to a shopping centre, and the same group member owns and operates both, it is likely that the income from parking would be property business income. It may not be property business income if a high level of services were provided to those using the car park - in which case the income would be trading income.

Where one member of a group owns a shopping mall in a town centre and another group member operates the car park attached to it, it would depend on who used the car park, whether fees were charged to use it and what level of services were provided to users. At one extreme, a major car park operation used by visitors to the town centre in general - in which case the provision of parking would probably be a trade. At the other, it might be little more than a few spaces beside the mall with signs restricting its use to people shopping in the mall - in which case it would probably be part and parcel of the mall.

Provision of ancillary services to tenants

Where the services are of a kind normally provided to tenants of the kind of building in question, such as concierge, security and cleaning of common parts of a multi-occupancy building, then the fees charged for these services would be included in property business income, and thus qualify as part of a property rental business.

If the agreement under which the tenant occupies the building goes beyond payment to occupy the building, then it would be necessary to apportion the income and expenses, on a just and reasonable basis, relating to the agreement as between property business and a trade.

In some cases, the level of service provision may be sufficient to cause the property to be described as ‘owner-occupied’ under IAS 40. However, if the tenant is in exclusive occupation of the property and is not connected with the UK-REIT, then it is not regarded as ‘owner-occupied’). This means that the rental element of the payments is within the definition of property rental business.