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HMRC internal manual

Guidance on Real Estate Investment Trusts

From
HM Revenue & Customs
Updated
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Miscellaneous: indirect ownership of property

As well as owning property directly, the company may have interests in vehicles that own property, such as companies, unit trusts, partnerships and joint ventures. Depending on the nature of the vehicle and the regime rule in question, the entity through which the property is owned may be treated as transparent/look-through or opaque. Below is a brief summary of the alternative treatments: information about how different types of entity are dealt with is at GREIT09020 onwards.

There are a number of broad principles applied in deciding how indirectly held property is treated for the various purposes of theUK-REIT regime:

  • for Group REITs, ‘look-through’ treatment applies for TCGA group members and joint venture companies where there is a Joint Venture Look-Through notice in place (see below)
  • for Group REITs, accountancy rules apply for the Balance of business Conditions where property is held via entities other than TCGA group members (see GREIT09015), and
  • the legal nature of the vehicle determines the outcome where the conditions etc have a direct tax consequence (such as the Entry Charge and the measure of tax-exempt income for the 90% distribution requirement) (see GREIT09020 onwards).

Group REIT: look-through treatment for members of the TCGA group

For a Group REIT, the company wrapper is looked through for members of the TCGA group. To the extent group members own a subsidiary, its qualifying property counts for the Tax- exempt business and Balance of business conditions. The market value of its property is included in the Entry Charge computation. Income from and gains on disposal of the property are tax-exempt. Qualifying property is property that is not owner-occupied and property not excluded by Schedule 16 FA 2006.

This treatment also applies to joint venture companies in respect of which there is a Joint Venture Look-Through notice in place.

Single company UK-REITs: no ‘look-through’ treatment for subsidiaries

A company which is the parent of a TCGA group may join the regime as a single company. In this case, there is generally no look-through to the underlying income, assets etc of the subsidiary, even if it is a 75% / effective 51% subsidiary. Any property held by the subsidiary is ignored for the Tax-exempt business and Balance of business conditions. The market value of its property is not included in the Entry Charge computation. Income from and gains on disposal of the property are taxable.

The exception is where the subsidiary is a joint venture company for which there is a Joint Venture Look-Through notice in place, when the look-through treatment described above applies.