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HMRC internal manual

Guidance on Real Estate Investment Trusts

From
HM Revenue & Customs
Updated
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Residual income: disposal of assets used in the property rental business

General rule

The general rule for UK-REITs is that the gain arising on disposal of an asset that was involved in the property rental business is not a chargeable gain and as such is not charged to tax.

Gains on disposals of assets not involved in the property rental business are chargeable to CT in the normal way (except that the full CT rate is charged because small companies’ rates are not available - section 534(3) CTA 2010). Disposal of shares in a subsidiary member of the Group REIT will give rise to a CT charge, even though the subsidiary might have been carrying on a property rental business.

Exceptions

There are two exceptions to the rule that disposals of assets of the property rental business are tax-free. One is the disposal of properties used in the property rental business within 3 years of completion of a development (section 556(3) CTA 2010) - see GREIT04520. The other is where a property used in the property rental business is disposed of by way of trade - see GREIT04515. In both cases, the transaction is treated as though the assets had never been used in the property rental business and the profit, gain or loss is treated as arising in the residual business and is subject to tax (section 556(1) and (2) CTA 2010).

The rental income and associated expenses that have been included in the property rental business profits are left undisturbed - see GREIT04050 for more detail. If the asset was owned by the company/member of the group at the date it joined the regime, the deemed sale and reacquisition at entry are ignored and the company can claim repayment of the amount of Entry Charge relating to the property (see GREIT04055).

These rules apply to disposals of assets of UK companies and disposals of assets involved in the UK property rental business of non-UK companies.