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HMRC internal manual

Guidance on Real Estate Investment Trusts

Leaving the regime: early exit: Direction by HMRC


If a company or group leaves the regime as a result of a notice given by HMRC under section 572 CTA 2010, or automatic termination under section 578 CTA 2010 as a result of breaching conditions for company A, B, E or F of section 528 CTA 2010, then the timing of leaving the regime and the tax consequences can be altered by direction of HMRC.

If the event that triggers the notice is within ten years of joining, HMRC can not only specify when the regime ceases to apply to the company/group, but may also remove tax exemption from the property rental business (section 582 CTA 2010). HMRC can also modify the application of the UK-REIT rules to the company / group, and the application of other CT provisions. In particular, HMRC can prevent a loss, deficit or expense being set off or otherwise at all or in a specified manner.

The mechanism for doing this is for HMRC to make a direction under section 582(2) CTA 2010. The company can appeal if they receive such a direction.


HMRC may decide to issue a direction under section 582(2) CTA 2010 in the following circumstances. In this case, the direction is triggered by the company breaching a condition of section 528 CTA 2010 that would result in termination of the regime within 10 years of joining.

Company C joined the UK-REIT regime on 1 January 2007. It makes up accounts to 31 December. In early 2012, C discovers an office block that was involved in the property rental business is riddled with asbestos. C manages to sell it on the open market in June 2012 for 350. The property cost 500 in 1990; its market value on joining the regime was 2,500, and at 31 December 2011, its market value (before the asbestos was discovered) was 2,800.

The company issues a new, B class, of ordinary shares in July 2012.

Issuing the B class shares is a breach of Condition E of section 528 CTA 2010. Normally, this would disapply the UK-REIT regime to the company with effect from 31 December 2011 (the end of the accounting period before the trigger event - section 578(2) CTA 2010). This would mean the 2,450 loss on disposal (market value on leaving the regime less sale proceeds) would be an allowable loss for TCGA purpose.

HMRC may take the view that the company deliberately triggered exit from the regime by issuing the B class shares, in order to access that loss. It may decide to issue a direction under section 582(2) CTA 2010 to prevent that. It may direct that termination is 31 December 2012, which would mean the loss accrues to the property rental business and is therefore not capable of use elsewhere. Or HMRC may direct that termination is 31 December 2011 but that the loss is not allowable.