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HMRC internal manual

Guidance on Real Estate Investment Trusts

Group REITs: conditions to meet while in the regime

Before giving notice to join the regime, the principal company itself must meet two conditions, and once in the regime, the company must meet four further conditions throughout every accounting period that it is in the regime, (although two do not have to be met for all of the first day of the accounting period). They are set out in section 106 FA 2006 as modified for groups by paragraph 5(1) of Schedule 17 to FA 2006. In addition the principal company has one obligation, to prepare financial statements (see below)

The conditions for giving notice to join the regime are that the principal company:

  1. is UK resident,
  2. it must not be an open-ended investment company. and

The further conditions for remaining in the regime are:

  1. its shares must be listed on a recognised stock exchange.
  2. it must not be ‘close’,
  3. the only shares it can have in issue are a single class of ordinary share capital and various classes of relevant preference shares (see GREIT02015 for more detail), and
  4. it must not be party to any loan where the results are dependent on the profits of the business.

For more detail on conditions 1-3 see GREIT02010, and for conditions 4-6 see GREIT02015. For more detail on conditions 3 and 4 not being met on entering the regime see GREIT03010.

Financial statement condition - paragraph 5(2) Schedule 17 FA 2006

The principal company must provide three sets of financial statements that are used to produce figures for other conditions the group as a whole must meet throughout each accounting period the group is in the regime. For more detail see GREIT12106.

Balance of business Conditions - section 108, as modified by paragraph 5(1) Schedule 17 FA 2006

This relates to the ratio of property rental business to other business carried on world-wide by the group. For each accounting period, 75% of the group’s world-wide activities by reference to asset values and to income must be property rental business. For more detail, see GREIT12010.

Tax-exempt business Conditions - section 107 as modified by paragraph 6 Schedule 17 FA 2006

These two conditions relate to the ‘UK property rental business’ of the group. For this purpose, the property rental business of group members is regarded a single business. This business must include at least three separate rental properties and no one property can be more than 40% of the total value of the properties in that business. For more detail, see GREIT12005.

Distribution Condition - section 108(4) as modified by paragraph 7 Schedule 17 FA 2006

The final condition that must be met is the ‘distribution requirement’. The principal company of the group must distribute as property income dividends 90% of the income of the ‘tax-exempt business’ of group members. For more detail, see Greit12025.