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HMRC internal manual

Guidance on Real Estate Investment Trusts

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



With any portfolio of property, it is inevitable that the owner will from time to time, sell some of the property. To maintain the quality of their investment, they are likely to undertake property refurbishment. Many property companies whose focus is rental, will also develop, both for selling on and for retaining as part of their portfolio of rented properties.


The focus of the UK-REIT regime is returns from property in the form of rental income, and not on generating profits by developing or dealing in it. The property business therefore, excludes activities that amount to developing for sale or dealing in property (which would amount to trading activity). The rules do recognise that property companies may want to do some of these activities and so long as they are limited to 25% (of total profits and assets of the company/group), there is no problem.

In the majority of cases, it will be clear whether the sale of property is part of the normal churning of a portfolio (when gains will arise to the property rental business and will not be chargeable to corporation tax) or by way of trade (when gains will be taxable as trading income). Over the years, case law has established a number of Indicia or Badges of Trade that are to be considered in deciding if a disposal is by way of trade. In the context of property, there is much useful guidance on this in the Property Income and Business Income Manuals (see BIM60000 onwards).

See GREIT04045 and GREIT04048 for examples in the context of activities that a UK-REIT may contemplate.