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HMRC internal manual

Guidance on Real Estate Investment Trusts

From
HM Revenue & Customs
Updated
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Breaches of conditions: Balance of business Conditions: repeat, multiple and serious breaches

If either of the Balance of business Conditions are breached more than twice in ten years, the regime ceases to apply with effect from the last day of the accounting period before the condition was breached for the third time.

If breach of either of the Balance of business Conditions follows four breaches of other conditions within ten years, then, under the multiple breach rules in regulation 8 SI 2006/2864, the regime ceases to apply with effect from the last day of the accounting period before the Balance of business Condition was breached. However a breach of the balance of business condition when first joining the REIT regime will not be taken into account when reckoning the number of breaches see GREIT02075.

Serious breaches

Where the breach of a condition in sections 107 or 108 is serious, HMRC may give notice that the regime no longer applies (section 129(2)(c) FA 2006), regardless of whether the limits for breaching either of the individual conditions, or the multiple breach limits have been reached. The notice specifies the date from which this is to happen, which in general is from the end of the accounting period before the one in which the breach occurred. For more detail on termination notices under section 129 FA 2006, see GREIT06025).

Breach lasting three accounting periods

If the income or assets of the tax-exempt or property rental business remain below 75% but above 50% of the total for three consecutive accounting periods, the breach is no longer considered minor, and is regarded instead as serious. HMRC will give notice to the company (principal company in the case of Group REIT) to remove the company or the group from the UK-REIT regime. The company or group will cease to be a UK-REIT with effect from the last day of the second accounting period.

Income or assets of property rental business below 50% of total

If the income or assets of the tax-exempt or property rental business fall below 50% of the total regardless of the duration, the breach is regarded as serious and HMRC will issue a termination notice under section 129(2)(c) FA 2006. The company or group will cease to be a UK-REIT with effect from the end of the accounting period before that in which the percentage falls below 50%.