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HMRC internal manual

Guidance on Real Estate Investment Trusts

Group conditions and rules: conditions for 'property rental business'

The property rental activities of a group must meet certain conditions for the regime to apply to it. The two conditions are:

  • the property rental business must consist of at least three properties and,
  • no one property can account for more than 40% by value of the assets of the property rental business,

These are set out in section 107(3) to (4), as modified by paragraph 6 Schedule 17 FA 2006, and are adaptations of Tax-exempt business Conditions 1 to 3 that apply to single company UK-REITs (see GREIT02010]). They must be met throughout the accounting period of the principal company of the group. In some circumstances, the group may breach these conditions and remain in the regime - see GREIT07015.

For the purposes of these conditions, the property rental businesses of all the members of the group are treated as a single business (paragraph 5(1) Schedule 17). This means that each member of the group does not have to meet these conditions on their own.

More detail on the definitions of ‘owner-occupied’ in the context of groups can be found in GREIT12005 and on the meaning of ‘property’ and ‘single property’ can be found in GREIT02020 onwards.

‘Property rental business’

This is defined in section 104 FA 2006, and includes the world-wide property rental activities of all members of the group, subject to activities excluded by Schedule 16. More detail on exclusions can be found in GREIT01020.

For UK resident group members, it includes the property business apart from any types of income or business listed as excluded in Schedule 16. For non-resident members of the group, it includes the same kind of business i.e. the company’s property business, were the subsidiary UK resident (paragraph 32 Schedule 17), subject to the same Schedule 16 exclusions.

Note that the term ‘property rental business’ as used for these conditions is not the same as the property rental business that gives rise to tax-exempt profits.