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HMRC internal manual

Guidance on Real Estate Investment Trusts

Residual income: treatment of disposals: three year development rule

The three-year development rule operates where a company / member of a group, having entered the UK-REIT regime, develops a property used in the property rental business and sells it within three years of completing the development. For more detail on the rule, see GREIT04050. The rule does not say that such a sale is automatically to be treated as a trading transaction; it merely moves it from the property rental business to the residual business of the company.

Once in the residual business of the company, the disposal may be either part of a trade or adventure in the nature of trade, or a disposal that gives to a capital gain. It will depend on how the Badges of Trade apply to the facts of the transaction. If the transaction does amount to trade, then the consequences, outlined in GREIT04515 above, apply.