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HMRC internal manual

Guidance on Real Estate Investment Trusts

Miscellaneous: availability of group relief

Background: the ring fence

The UK-REIT legislation sets up a ring fence between the tax-exempt and otheractivities carried on by any one company covered by the UK-REIT rules. The ring fenceprevents losses from the tax-exempt activities being used to reduce the profits of taxableactivities. For Group REITs, this concept is taken one step further, to prevent grouprelief etc from allowing a loss in the tax-exempt activities of one group member being setagainst profits of taxable activities of another group member.

To achieve this, G (property rental business) is treated as a separate group from theother parts of the group defined in paragraph 2 Schedule 17 FA 2006 (G (pre-entry), G(residual) and G (post-cessation)), but only for the purposes listed in section 136(2) FA2006.

Provisions affected

These are:

  • sections 171 and 171A TCGA (actual or notional transfers of assets within a group),
  • sections 179A and 179B TCGA (reallocation or roll-over of gain within a group),
  • Chapter 4, Part X ICTA (group relief),
  • Schedule 9 FA 1996 (loan relationships),
  • Schedule 26 FA 2002 (derivative contracts), and
  • Schedule 29 FA 2002 (intangible assets).

The effect of deeming G (property rental business) to be a separate group for thesepurposes means that transfers of assets across the ring fence will generally take place atmarket value.

The inclusion of a provision in this list does not however prevent it operating whenlosses are surrendered or assets etc transferred between members of the same deemed group.Although less likely to arise in practice, neither does inclusion in this list prevent theprovision from operating between members of G (pre-entry), G (residual) and G(post-cessation).

See also GREIT09100 for the application of section 171 TCGAwhere a company with 75% subsidiaries joins the regime as a single company rather than aGroup REIT.