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HMRC internal manual

Guidance on Real Estate Investment Trusts

From
HM Revenue & Customs
Updated
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Joint ventures: Joint Venture Look-Through Notice: venturing company becomes principal company of a Group REIT

Where a venturing company becomes the principal company of Group REIT, if it and the joint venture company want the ‘look-through’ treatment to continue, a new venturing group ‘look-through’ notice has to given. Normally this notice would trigger an Entry Charge in respect of the company’s interest in the joint venture company.

% interest in the joint venture company unchanged

If the interest is unchanged from when the company gave notice as a venturing company, no Entry Charge arises in respect of the assets of the joint venture company (regulation 14(1) SI 2006/2866 and regulation 14(1) SI2007/3425).

Increase in % interest in the joint venture company

If the interest has increased (but remains below 75%) since the company gave the original notice as a venturing company, the Entry Charge in respect of the assets of the joint venture company is adjusted to reflect Entry Charge paid by the joint venture when the original notice became effective (regulation 14(3) SI 2006/2866 and regulation 14(4) SI2007/3425).

The adjustment is made by reducing the chargeable notional income measured by reference to the market value of the assets involved in the property rental business of the joint venture at the date the notice becomes effective by the amount of notional income brought into charge when the original notice became effective.

Example

Venturing company V has a 40% interest in joint venture company J. At the date the original look-through notice became effective, the main CT rate was 30% and the market value of the assets involved in J’s property rental business was 10,000. The Entry Charge paid by J was 80 (based on notional income of 285 = 2% x 40% x 10,000/0.28 chargeable at 28%). On 1 January 2020, V becomes the principal company of a group and in the meantime has increased its interest in J to 60%. V and J give a new venturing group look-through notice, effective from 1 January 2020 when the main CT rate is 25%. The market value of the assets involved in J’s property rental business is 20,000 at that date. The Entry Charge payable by J would be 240 (based on notional income of 960 = 2% x 60% x 20,000/0.25 chargeable at 25%). To reflect the Entry Charge originally paid by J, the notional income is reduced by 285 and the Entry Charge at 1 January 2020 is 169.

Joint venture company joins the group

If the venturing company’s interest has increased such that the joint venture is now a member of a group headed by the venturing company (i.e. is more than 75%), the venturing company may give notice that it and the members of its group are joining the regime as a Group REIT.

Normally, this would trigger an Entry Charge in respect of the assets of the joint venture company under paragraph 9 Schedule 17 FA 2006. The charge is however adjusted to reflect the Entry Charge paid by the joint venture company when the original notice became effective (regulation 14(5) SI 2006/2666 and 14(5) SI2007/3425).

The adjustment is made in the same way as when the venturing company increases its interest in the joint venture company but it remains below 75% (see above).