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HMRC internal manual

Guidance on Real Estate Investment Trusts

Group REITs: definition of 'group' that can be a Group REIT

Other entities that are part of commercial group

Members of the group may have less than 75% interests in other companies and interestsin vehicles that are not companies, such as LLPs and unit trusts. This does not preventthe group from being a Group REIT, but the tax-exemption and other rules that apply tocompanies that are members of the group as defined, do not apply to these other companiesand may not apply to other vehicles, depending on its legal nature.

Excluded companies

Regardless of the percentage interest held in them, certain types of company are notallowed to be part of a Group REIT, either as the principal company or as a member of thegroup. These are:

  • insurance companies (as defined in section 431(2) ICTA),
  • a subsidiary of an insurance company (company in which 75% or more of the shares are held by one or more insurance companies), and
  • open-ended investment companies.

Note that this reference to ‘open-ended investment company’ is not restrictedjust to those that fall within the section 236 Financial Services and Markets Act 2000definition.

If members of the group have interests in excluded companies, then the interest is treatedas an asset of the residual or non-ring fence business of the group and any dividendarising from the shares is residual income.

Company that is not a ‘75% subsidiary’ or an ‘effective 51%subsidiary’

Members of the group may have insufficient interest in a company for it to be a 75%/effective 51% subsidiary. Again, the group can be a Group REIT, but the group’sinterest in the company is treated as an asset of the residual or non-ring fence businessof the group and any dividends arising from the shares are residual income. This isregardless of the nature of the activities carried on by the company.

The exception to this rule is where the company is a joint venture for which a ‘lookthrough’ election has been made. These can be made where the Group REIT owns 40% ormore of the company and the company itself carries on mainly property rental business (see GREIT13015).

Other vehicles

Having interests in other types of vehicle does not prevent a group of companies thatotherwise meets the definition in section 134 FA 2006 from being a Group REIT. How theinterest in the vehicle and the underlying income and assets are treated depends on thenature of the vehicle – see GREIT09015.