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HMRC internal manual

Guidance on Real Estate Investment Trusts

Group conditions and rules: Financial Statements: G (property rental business) and G (residual): other entities treated as transparent


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 wrapper as transparent and takes account of the activities carriedon by the entity: the other treats the entity as opaque (see GREIT12130).

Transparent treatment

For entities that are treated as transparent, the contributions of the entity to thefinancial statements of G (property rental business) and G (residual) are shown in thesame way as that of 75% subsidiaries. The assets owned by the entity and the income,expenses etc arising on the activities carried on by the entity are divided between G(residual) and G (property rental business) depending on the nature of the activities.Note that this treatment does not imply that the entities are members of the group for taxpurpose.

This treatment applies to the following entities:

  • non-corporate entities and OEICs in which members of the group have ‘significant influence’ (broadly, owning more than 20% of the entity – see GREIT11145including:

    • unit trusts of all descriptions;
    • partnerships; and
    • joint ventures carried on through contractual arrangements;
  • joint venture companies in respect of which a joint venture look-through election is in place (see GREIT13020);
  • companies that are members of the group, as defined in section 134(2) FA 2006 (i.e. 75%/ effective 51% subsidiaries of the principal company of a Group REIT).

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

For example, a member of a Group REIT has a 20% interest in an OEIC that owns a property,valued at 1,000 and generating rental profit of 60 and with cash on deposit of 400,yielding interest at 5%. The financial statement G (property rental business) will show aproperty valued at 200 (being 20% of 1,000 property owned by the OEIC) and rental incomeof 12 (being 20% of 60 rental income arising to the OEIC). The financial statement G(residual) will show an asset valued at 80 (being 20% of 400) and income of 16 (being 20%of 80). The group member with the interest in the OEIC will not have any income arising toits tax-exempt business in respect of its interest in the OEIC. It will instead have adividend of 28 arising to the residual part of its business, but it is tax-exempt becauseit is an ordinary company dividend.

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