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HMRC internal manual

Guidance on Real Estate Investment Trusts

HM Revenue & Customs
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Group conditions and rules: Financial Statements: G (property rental business) and G (residual): other entities treated as opaque


The activities of entities other than group members are reflected in the financialstatements for G (property rental business) and G (residual) in one of two ways, dependingon nature of the vehicle and the level of influence members of the group have over it. Oneway broadly treats the entity as opaque: the other treats the wrapper as transparent andtakes account of the activities carried on by the entity (see GREIT12135).

For entities that are treated as opaque, the value of the group’s interest in theentity is shown as an asset of G (residual) and payments made by the entity are shown asincome of G (residual). It does not therefore matter what activities are undertaken orwhat kind of assets are owned by the entity.

This treatment applies to the following entities:

  • any entity in which members of the group do not have ‘significant influence’ (broadly, owning 20% or less of the entity – see GREIT12145);
  • companies other than

    • members of the group, as defined in section 134(2) FA 2006 (i.e. they are not 75%/ effective 51% subsidiaries of the principal company of a Group REIT);
    • joint venture companies in respect of which a joint venture look-through election is in place (see GREIT13020); and
    • OEICs.

This means that some entities that are treated as transparent for tax purposes will betreated as opaque in the preparation of the financial statements of G (property rentalbusiness) and G (residual). However, this treatment of the income arising and of assetsheld by the entity for the Balance of Business Conditions does not extend to calculationof tax-exempt profits.

For example, a member of a Group REIT has a 10% interest in a partnership that owns aproperty, valued at 1,000 and generating rental profit of 60 and with cash on deposit of400, yielding interest at 5%. The financial statement G (residual) will show an assetvalued at 140 (being 10% of 1,000 + 400) and income of 46 (being 10% of 400 + 60) inrespect of the interest in the partnership. The group member with the interest in thepartnership will have tax-exempt property rental income of 40 and taxable interest of 6from the partnership.

The table at GREIT12140 summarises the treatment of varioustypes of vehicles.