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HMRC internal manual

Guidance on Real Estate Investment Trusts

HM Revenue & Customs
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Group REITs: overview

Real Estate Investment Trusts and groups

A group of companies may become a Real Estate Investment Trust, referred to in this guidance (but not in legislation) as a Group REIT. The rules that apply to a Group REIT are similar to the rules that apply to a single company Real Estate Investment Trust, but translated into a group context.

Once a group is a Real Estate Investment Trust, the income of members of the group from qualifying property rental business activities is exempt from tax. Gains on disposal of assets used by group members in their qualifying property rental business are also exempt from tax.

The amount of income and gains of the qualifying property rental business of each member that are exempt from tax is restricted to the percentage interest held by group members in that company. The remainder of the income and gains of the property rental business (which represents the proportion of the company held by non-group members) and any other non-qualifying activities are taxable in the normal way.

The principal company of the group is required to distribute an amount equal to 90% of the tax-exempt income of the group members by the CTSA filing date of the accounting period to which the distribution relates. This distribution is paid under deduction of income tax at the basic rate (20%).

The rules specific to Group REITs are in sections 134 and 136 FA 2006. The other Finance Act rules for Group REITs are set out in Schedule 17, as modifications of the rules that apply to single company Real Estate Investment Trusts. The matters dealt with in regulations (SI 2006/2864 to 2867 SI2007/3536 and SI2009/1482) in general set out each rule separately as it applies for single company UK-Real Estate Investment Trusts and for Group REITs.

Note that although section 135 FA 2006 (transfers within a group) is in the same place as the rules specific to Group REITs, the rule applies to a single-company REIT that has subsidiary companies (see GREIT09005 for details), and not to Group REITs.