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HMRC internal manual

Guidance on Real Estate Investment Trusts

Groups: leaving the regime: effects of cessation: on tax-exempt business and accounting periods

On leaving the regime, a line is drawn between the property rental activities of the group members after leaving the regime, and those that are carried on and exempt from tax while the group was within the regime. This is done in two ways: one is to deem the tax-exempt property business of the group members to cease for tax purposes; the other is to cause their accounting periods to come to an end for CT purposes when the group leaves the regime. Where a REIT demerges into two REITs see GREIT06010

Cessation of tax-exempt property business

On leaving the regime, the tax-exempt property business of the each member of the group is treated as ceasing (section 131(1) as modified for groups by paragraph 26 Schedule 17 FA 2006). This means that any property business carried on by group members after the group has left the regime is a newly set up and commenced business for tax purposes. This deemed cessation does not however apply to the other activities carried on by the group member.

One accounting period ends/ new one begins

When a group leaves the regime, the accounting period of the residual part of each group member comes to an end (section 131(5) as modified for groups by paragraph 26 Schedule 17 FA 2006), as does the accounting period of its tax-exempt part) (because section 131(1) as modified deems its business to cease on leaving the regime). This is the final accounting period for the tax-exempt part of each group member. A new accounting period starts on the first day the regime ceases to apply to the group. This is the first accounting period of members of G (post-cessation).

Note that ‘accounting period’ is a term used for computing profits and assessing CT, and is defined in sections 9-12 CTA 2009. It is not necessarily the same period as the interval between two accounting dates. Although an ‘accounting period’ always comes an end on an accounting date, there are several occasions when an accounting period starts on a different day. The requirement for a new accounting period to begin applies only for CT purposes: there is no requirement that group members change the date to which they draw up their accounts to reflect the new accounting period for CT purposes.