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HMRC internal manual

Guidance on Real Estate Investment Trusts

Property rental business income: investment/trading borderline: refund of Entry Charge


Where a UK-REIT develops a property with the intention of retaining it as part of its investment portfolio, but sells it within three years of completion, the disposal is taken out of property rental business and any gain, loss or profit arises to the UK-REIT’s residual business. The company is allowed to reclaim payment of that share of the Entry Charge that related to the property (section 556(4) CTA 2010).

A UK-REIT may dispose of a property involved in the property rental business in such a way that the transaction amounts to trade or an adventure in the nature of trade. When this happens, the company may also reclaim any Entry Charge attributable to the property (section 556(4) CTA 2010.

The legislation does not prescribe a form on which to make the claim, and the claim should be made as part of the CTSA return for the residual business of the company owning the asset for the accounting period in which the disposal takes place.

The formula given to calculate the amount that can be reclaimed is:

Asset Market Value x Tax Paid
Market Value  


  • Asset Market Value is the market value of the property that was developed and sold within three years of completion of the development, as at the date of entry into the regime
  • Market Value is the aggregate market value of the properties treated as sold and reacquired when the company joined the regime, ignoring any property with negative value (i.e. that is a liability, for example, because of an onerous lease) (section 539(3) CTA2010) and
  • Tax Paid is the amount of Entry Charge paid by the company on entering the regime.

If the company pays the Entry Charge in a single instalment at 2% of the aggregate market value, the reclaim is based on tax paid at 2% of the asset market value.

If the company chose to pay the Entry Charge in four instalments, the reclaim reflects tax paid at 2.19% of the asset market value.

If the disposal occurs before the fourth year the company is in the regime, the reclaim is still based on 2.19% of the market value. The size of instalments due after the disposal are not adjusted to take account of reversing the deemed sale and repurchase of the property at entry to the regime.