Leaving the regime: effects of cessation: on property rental business and accounting periods
On leaving the regime, a line is drawn between the property rental activities of the exiting company after leaving the regime, and those that are carried on and not chargeable to tax while the company is within the regime. This is done in two ways: one is to deem the property rental business of the company to cease for tax purposes; the other is to cause the accounting period of the exiting company to come to an end for CT purposes on leaving the regime. For the effect of this on the availability of relief for losses, see GREIT06013.
These requirements apply for UK members of a group exiting the REIT regime and for non-UK members carrying on a UK property rental business. Where a REIT demerges into two parts section 558 / 559 CTA 2010 sets aside the rules that would result in the demerged part leaving and rejoining the regime. One result is that no second entry charge is applied. A notice under section 523 CTA 2010 may be given by the demerged REIT even if that REIT does not expect to meet conditions C to F of section 528 CTA 2010 throughout the first accounting period. If however, these conditions are not met within 6 months of the transfer of the demerged asset then the above rules are not set aside.
Cessation of property rental business
On withdrawal from the REIT regime, the property rental business of the exiting company is treated as ceasing (section 579(3) CTA 2010). This means that any property business carried on by the exiting company after it has left the regime is a newly set up and commenced business for tax purposes. This deemed cessation does not however apply to the other activities (residual business) carried on by the company.
One accounting period ends/new one begins
When the exiting company leaves the regime, the accounting period of the residual business comes to an end (section 579(7) CTA 2010), as does the accounting period of the property rental business of the exiting company (because section 579(3) CTA 2010) deems its business to cease on leaving the regime). This is the final accounting period for the property rental business of the exiting company. A new accounting period starts on the first day the regime ceases to apply to the company REIT or member of a group REIT. This is the first accounting period of each exiting company post-cessation.
Note that ‘accounting period’ is a term used for computing profits and assessing CT, and is defined in Part 2, Chapter 2 CTA 2009. It is not necessarily the same period as the interval between two accounting dates. Although an ‘accounting period’ always comes to an end on an accounting date, there are several occasions when an accounting period starts on a different day. The requirement for a new accounting period to begin applies only for CT purposes: there is no requirement for a company which leaves the REIT regime to change the date to which it draws up its accounts to reflect the new accounting period for CT purposes.