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HMRC internal manual

Guidance on Real Estate Investment Trusts

Miscellaneous: availability of group relief: example

A Group REIT consists of principal company P and wholly owned subsidiary S. Both companies carry on tax-exempt property rental business. S owns the office block used as group headquarters, and P pays S rent for its use. The building is therefore ‘owner-occupied’ by the group and is not part of the tax-exempt business of S. The group decides to relocate its head office to a property owned by an unrelated company and to rent out its former HQ.

If ownership is transferred to P, the former HQ moves from G (residual) to G (property rental business). The group cannot use section 171 TCGA to transfer the property at no gain/ no loss and must calculate the chargeable gains arising to S on the basis of a disposal at market value.

If S retains ownership of the former HQ, the same consequences follow. This is because the property still passes from G (residual) to G (property rental business), even though legal ownership is not changed.

If however the group transfers ownership to P and sets up and operates a hotel in its former HQ, section 171 TCGA can apply because the transfer is between members of G (residual). The property remains in G (residual) because although no longer occupied as group HQ, the building would still be regarded as ‘owner-occupied’.