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HMRC internal manual

Guidance on Real Estate Investment Trusts

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HM Revenue & Customs
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Capital gains: computational rules: transfers of assets within a Group REIT (sections 171 and 171A TCGA)

 

 

For a Group REIT, the operation of sections 171 and 171A TCGA is affected by section 601 CTA 2010, which deems the group as far as it carries on a property rental business to be a separate group from the group as far as it carries on residual business, the group pre entry and the group post cessation, taken together, for the purposes of section 171 and 171A.

 

(For the application of these sections where the parent company of a group has elected to join the regime as a single company, see GREIT05025 and section 171(2)(da) TCGA 1992.)

Section 171 TCGA allows a group of companies within the REIT regime to move assets between member companies that are within the charge to CT at no gain/no loss for TCGA purposes. A chargeable gain or allowable loss will only accrue on a disposal outside the capital gains group or to a group company that is not within the charge to CT. When this happens the practical effect is that base cost used to calculate the gain will be the original cost of the asset when it first came into group ownership. For more details on the application of sections 171 and 171A TCGA, see CG45305+.

Where an asset transfers between the property rental and residual business, special rules apply. This can happen if the transfer is between

  • the property rental business of one group member and the residual business of another group member, or
  • the property rental business of one group member and the residual business of that same group member.

Where there is a transfer from the property rental business to the residual business, the asset is treated as having left a capital gains group for the purposes of section 171. No election for a deemed transfer under section 171A TCGA is possible on such transfers to permit the gain arising to a member in respect of its property rental business to be transferred either to that member’s residual business or another member’s residual business in order to shelter the gain. (Indeed there is no need as the gain is not chargeable).

However, where a member transfers an asset of the residual business to the group’s property rental business then section 171A TCGA would apply to permit the member to elect the gain into another member’s residual business, because the gain remains within the residual business of the group.

The mechanism in the UK-REIT legislation that achieves this is a result of the carve up of the group that is the UK-REIT into four deemed groups. Section 541 CTA 2010 treats the group as far as it carries on the property rental business as distinct from the group as far as it carries on residual business, the group before it joined the regime and the group after it leaves the regime. In the application of sections 171 and 171A TCGA, the group as far as it carries on the property rental business is deemed to be separate from the other deemed groups. This deeming does not however treat the other three deemed groups as separate from each other. Section 171 can apply as normal between members of those deemed groups.

For background on section 541 CTA 2010, see GREIT11020. The examples at GREIT05050 illustrate how section 171 TCGA operates in practice for a Group REIT.