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HMRC internal manual

Guidance on Real Estate Investment Trusts

Capital gains: computational rules: dual use assets: examples



The first example shows how the rules for attributing base costs etc work where a property asset that is not easily severable into separate parts has had dual usage. The second example is where the property has discrete parts. See GREIT05010 for guidance.


Example 1

Company C joins the regime on 1 January 2007. At that time C owns a single storey office building which is divided into three similar units with a communal reception and car park (of roughly the same floor area as the building). The property is rented to F Ltd.

On 1 June 2007, F vacates and C Ltd uses the property as a regional office for both its property rental and residual businesses.

C sells the property on 31 December 2007.

When C sells the property one sixth of the gain will be chargeable to tax because one third of it was used for a residual business activity for the purposes of determining if an activity is part of the property rental business, section 604(2) CTA 2010 for half of the period.

Alternative scenario

If, instead, at 1 January 2007, C had a licence that allowed it to use only the car park at weekends (104 days per year) and the property was sold on 30 September 2010.

The gain would be chargeable to tax based on a value attributable to the use of the property on a just apportionment basis.

The total use of the property for residual business was 390 days out of 1,369 days. Although there is a de minimis rule for use of less than 12 months, it does not exclude from ‘temporal’ apportionment the first 12 months of other use.

Example 2

Company D joins the regime on 1 January 2007. At that time D owns a freehold office site, divided into four equal wings. The property is rented to G Ltd. On 1 June 2007, G surrenders one wing back to D Ltd for use as a regional office for both its property rental and residual businesses.

If the use for residual business is expected to be permanent, then this change of use would be treated as a transfer of part of the freehold site to the residual business of D. This would give rise to a capital gain in the hands of the property rental business of D at the date of the change of use. This disposal would be at market value and the gain would not be a chargeable gain.

If the arrangement is temporary, or part of a more flexible pattern of use of the office site, the change of use would be reflected in the division of any gain on disposal of the property by D, as in example 1 above.