Joint ventures: introduction
Section 138 FA 2006 provides powers to make regulations to apply the UK-REIT rules to a joint venture in which a UK-REIT is involved. Although joint ventures may take many forms, ranging from limited companies, through partnerships to contractual arrangements, the regulations made under this power (SI 2006/2866 and SI2007/3425) deal only with joint ventures carried out through a limited company or a group of companies as determined by Section 134 see GREIT11025. Where the regulations apply, the joint venture company or group is treated for most purposes of the UK-REIT rules in the same way as members of a Group REIT.
For vehicles that are transparent, such as partnerships or contractual arrangements, the normal UK-REIT rules apply. For most purposes (including computing Entry Charge and exemption of qualifying profits from tax), the proportion of the underlying assets, profits etc are attributed to the UK-REIT, according to their interest in the venture. This is dealt with in more detail in GREIT09015 onwards. For the Balance of business Conditions for a Group REIT however, all vehicles are treated as opaque if the UK-REIT’s interest in it is less than 20% (see GREIT12015 and GREIT12020).
For other vehicles no account is taken of the assets and activities of the joint venture in applying the various conditions and tests in the regime. The value of the UK-REIT’s interest in the venture is an asset of the residual business and income arising is residual income, regardless of the nature of the activities undertaken by the joint venture.
Terms used in legislation and guidance
Joint Venture Company: a company carrying on a joint venture between a REIT company or group and another person.
Joint Venture group: a group of companies carrying on a joint venture between a REIT company or group and another person.
Venturing company or group: the REIT company or group that has a joint venture with another person.
The Regulations SI2006/2866 and 2007/3425 deal with a single company joint venture and a joint venture group respectively. Both sets of Regulations apply the REIT legislation firstly to a single company with a joint venture and then to a group with a joint venture. The regulations cover the following situations
- A single company REIT with a single company joint venture,
- A group REIT with a single company joint venture,
- A single company with a joint venture group and
- A group REIT with a group joint venture.