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HMRC internal manual

Guidance on Real Estate Investment Trusts

Property rental business income: investment/trading borderline: other examples



This page covers some other examples of the investment/ trade borderline. Development is dealt with at GREIT04045.


Disposals within two years of leaving the regime (notice by company)

Where a company / group has been a UK-REIT for less than ten years and having voluntarily left the regime, sells a ‘property rental asset’ within two years of leaving the regime, special rules apply. See GREIT06040.

Shared ownership

Some property developers or housing associations build houses or flats on a shared ownership basis. Typically, the developer will sell part of the property to the occupant, and retain ownership of the remainder. The occupant pays rent to the developer in respect of the part of the property they do not own. The occupant may have the opportunity to increase gradually the proportion of the property they own, a practice known as ‘staircasing’.

Depending on the legal arrangements that underpin the shared ownership, the rental income and the part of the property retained by the developer may qualify as property rental business. For this to be the case, the developer must retain an interest in the property and not just a charge over it, and the occupant must pay rent and not interest on a mortgage secured on the property.

If the expectation is that large numbers of occupants do take advantage of the facility to increase their share of their property, the stock may be regarded as held as trading stock (intention at the outset being an important indicator of trade for property). In this case, the developer’s share of the property would not be within the property rental business and the rent paid on it would be excluded business under section 604 CTA 2010.

If however the reality is that, although occupants have the right to increase their share of ownership, very few in fact do (and the business model of the developer, housing association etc reflects that reality), the occasional sale of parts of some of the properties is unlikely to jeopardise the property rental nature of the business.

As with all trading/ investment questions, it depends on the facts of each particular case, and the above is only a brief guide to the some of the factors to take into account in deciding whether activities amount to trade.