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HMRC internal manual

Guidance on Real Estate Investment Trusts

Group conditions and rules: conditions for 'property rental business': owner-occupied

Owner occupied property is excluded from the tax exempt property rental business by Schedule 16 FA 2006. ‘Owner-occupied’ takes it’s generally accepted accounting practice meaning for the purposes of these conditions, this is modified to take account of groups, companies ‘stapled’ to group members and certain types of property management agreements (paragraph 6(3)(ba) Schedule 17 FA 2006). Information about the accounting definition, particular types of agreements and an explanation of ‘stapling’ are at GREIT02045.

For groups, the requirement to treat the property rental businesses of the group members as a single business means that a property owned by one group member, rented out to another group member counts as ‘owner-occupied’. This applies even if the rent is at full market rates.

Specific legislation has been introduced to prevent a REIT restructuring its group to benefit from exemption from tax on rental income from a person (the term person includes a company) which is connected to but is not a member of its REIT group. HM Treasury are permitted to introduce regulations to prevent such restructuring (section 136A FA 2006 as introduced by FA 2009).

Stapled companies (applies up to 6 July 2009)

If company SC is ‘stapled’ to a member of the group, GM1, SC and GM1 are treated as a single company for these tests. This means that a property owned by GM1 that is rented out to SC is treated as ‘owner-occupied’ and is not part of the property rental business of the group.

If another group member, GM2, rented property to SC, that too would be excluded from the group’s property rental business. This is a consequence of the requirement to treat the property rental businesses of all the group members as a single business, combined with this stapled company rule.