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HMRC internal manual

Guidance on Real Estate Investment Trusts

HM Revenue & Customs
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Residual income: disposal of assets used in the property rental business by way of trade


Where the disposal of an asset that was used in the property rental business amounts to a trade disposal, the property is treated as though it had never been involved in the property rental business. This is because the disposal gives rise to income that is chargeable as trading income, and therefore does not qualify as income of the property rental business. For background on when disposal of a property amounts to trade in the context of UK-REITs, see GREIT04030 onwards.

There is no deemed sale of the asset by the property rental business and reacquisition because section 555(2) CTA 2010 is set aside for ‘trading’ disposals by section 555(1) (b) CTA2010).

In working out the amount of profit to be brought into account as trading income, no deduction is allowed for expenses that have already been taken into account in arriving at profits of the property rental business. The cost of acquisition of the property is based on the original cost to the company of the property (without the benefit of indexation relief as this is a trading disposal). This also applies where the property was owned by the company when it joined the regime, as the section 536(2) CTA 2010 (section 111(2) FA 2006) deemed sale and reacquisition at entry are set aside for this purpose (section 556(2) CTA 2010). As well as the property reverting to its original cost, the company can claim repayment of any Entry Charge paid in respect of the property (section 556(4) CTA 2010.