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HMRC internal manual

Guidance on Real Estate Investment Trusts

Groups: leaving the regime: automatic termination


If the principal company breaches Company Conditions 1,2, 5 or 6 in section106 asmodified for groups by paragraph 5 Schedule 17 FA 2006, the group automatically leaves theregime (section 130 FA 2006). Unlike all of the other conditions of the regime, there are noprovisions that can be relied on to remain in the regime if these Companyconditions are breached.

Where the principal company has breached one of these conditions, the regime will, ingeneral, cease to apply to the group from the end of the accounting period before thebreach occurs. The exception is where the group has been a UK-REIT for less than ten years– in which case HMRC can direct that a different date of cessation applies – see GREIT06040.

The events that result in automatic termination are:

  • ceasing to be UK resident for tax purposes;
  • becoming an open-ended investment company;
  • issuing a new class of ordinary shares or any other type of share apart from non-voting relevant preference shares; and
  • borrowing money on terms that effectively entitle the lender to a share of the profits.

Where any of these events occur, the principal company is required to notify HMRC thatit no longer meets the condition as soon as practicable.