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HMRC internal manual

Guidance on Real Estate Investment Trusts

Leaving the regime: effects of cessation: availability of relief for losses



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 results in restriction on the availability of tax relief for losses.


Effect of cessation on losses

Losses etc relating to the property rental business cannot be carried forward for use in working out profits of any post-cessation property business. This is because the property rental business is treated as ceasing once the exiting company leaves the regime (see GREIT06010).

Neither can losses arising in the first accounting period of the post-cessation property rental business be carried back to reduce profits of accounting periods before the exiting company left the regime. This is because the post-cessation property rental business is a different business, carried on by a different person (the group or company carrying on the property rental business is deemed to be separate from the group or company post cessation).

To the extent that the exiting company, while a UK-REIT, carried on activities other than property rental, these (the residual business) are regarded as a business that carries on uninterrupted, before, during and after the company is in the regime. If the exiting company had a trading loss in the final accounting period before it leaves the regime, that loss can be carried forward in the normal way and used against profits of the trade as carried on by the post-cessation company.

If the company has unused capital losses, including losses on disposal of residual assets while it was in the regime and losses that arose on pre-entry disposals of rental property, they can be carried forward and used to reduce chargeable gains that may arise to the company post-cessation. This is because the company as far as it carries on residual business and the company which carries on the post cessation activities are deemed to be the same and not separate companies.