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HMRC internal manual

Guidance on Real Estate Investment Trusts

From
HM Revenue & Customs
Updated
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Capital gains: company ceasing to be a member of a group (section 179 TCGA): examples

Company leaves one group and joins a Group REIT

T and Z are members of group V. Z transferred a property to T on 30 June 2005 at a no gain/no loss value of 1,500. The market value at that date was 2,000. An existing Group REIT acquires T on 31 May 2007, when the market value of the property is 2,300. All companies have 31 December accounting dates.

The sale of T by V triggers a deemed disposal and acquisition of the property by T at its market value on 30 June 2005 (section 179(3) TCGA). The gain (before indexation) of 500 is treated as accruing to T on 1 January 2007 (section 179(4), being later than the date of the section 179(3) deemed sale and reacquisition). This gain is taxable on T in the accounting period that runs from 1 January to 31 May 2007 (the old one ceases and a new one begins when the UK-REIT regime first applies to T).

When T joins the Group REIT, there is another deemed sale and reacquisition of the property, at market value 2,300 (section 536(2) and (3) CTA 2010). The gain of 300 between the section 179(3) TCGA 1992 deemed sale and reacquisition and the section 536 (2) one, is not a chargeable gain (section 536(4) CTA 2010). T will not pay tax on the gain of 300 but instead will pay an Entry Charge of 46 in respect of the property (section 538 and 539 CTA 2010).

Company leaves a Group REIT

T and A are members of Group REIT G. A transferred a property to T on 30 June 2007 at a no gain/no loss value of 1,500 (original cost plus enhancement and indexation relief). The market value was 1,800 at the date of entry to the REIT regime and 2,000 at the date of the intra group transfer. A company (which is not a UK-REIT) acquires T on 31 May 2008, when the market value of the property is 2,300. All companies have 31 December accounting dates.

The sale of T by G triggers a deemed disposal and acquisition of the property by T at its market value on 30 June 2007 (section 179(3) TCGA). The gain (before indexation) of 500 is treated as accruing to T on 1 January 2008 (section 179(4), being later than the date of the section 179(3) TCGA 1992 deemed sale and reacquisition). This gain accrues to T in the accounting period that runs from 1 January to 31 May 2008 (the old one ceases and a new one begins when the UK-REIT regime ceases to apply to T). This gain accrues while T is within the REIT regime, and is therefore not a chargeable gain, under Section 535 CTA 2010.

When T leaves the Group REIT G, there is another deemed sale and reacquisition of the property, at market value 2,300 (section 579 (4) and (5) CTA 2010). The gain of 300 between the section 179(3) deemed sale and reacquisition and the section 579 (4) one, is also not a chargeable gain under Section 535 CTA 2010.

The base cost of the property to T for future disposals is as follows:-

2,300 if the property is retained for more than 2 years after T leaves the REIT regime and there are no deferred gains waiting to resurface or

2,000 if the company leaves the REIT group within 10 years and sells the property within 2 years see GREIT05055 and GREIT06xxx for the consequences of leaving the REIT regime within 10 years