IFM21025 - Real Estate Investment Trust : Background: Key Concepts: Property Rental Business: Excluded Business

CTA2010/S604 excludes certain types of business from the definition of property rental business. A power is conferred on HMRC to use regulations to add more types of businesses to the excluded list, and to amend or remove classes already listed. The classes of excluded business are below. (See IFM21035 for classes of excluded income).

Incidental letting of property held in connection with a trade in property

There is no definition for REIT purposes as to what amounts to a trade, general principles apply based on the badges of trade established by case law (see BIM20200).

The trade can be either development for sale (i.e. building and refurbishing with a view to making a profit) or buying and selling property. Whether or not a property is held as trading stock is a question of fact, and HMRC views on the subject are at BIM60000 onwards.

Letting of temporarily surplus accommodation

This excludes rent from letting out space that is otherwise used for administration of the property rental business. It applies where the space let is small compared with the space occupied for administrative purposes, and the letting is for a term of not more than three years. The aim of this exclusion is to avoid the tax complications of small parcels of property crossing from one side of the ring fence to the other.

Owner-occupied property

See IFM21030 for detail.

Services provided to tenants of overseas properties

To determine what services count as provided as part of property rental business, the test is the same regardless of whether the relevant property is in the UK or overseas.

This exclusion ensures the treatment of income from services in connection with letting an overseas property mirrors the treatment for the same services provided in connection with letting of a UK property.

Structured finance arrangements

Some kinds of structured finance arrangements give rise to property business income. Where arrangements are such that a finance arrangement code within the meaning given by CTA2010/S770 (2) or ITA2007/S809BZM (2) applies to the arrangements, the activities that give rise to the property business income are excluded from the definition of ‘property rental business’.