IFM21050 - Real Estate Investment Trust : Background: Overview Of The Regime

To become a Real Estate Investment Trust (REIT), a company or principal company of a group must meet certain conditions before giving notice to be a REIT (IFM22010). Once in the regime, the company/principal company must continue to meet those conditions and further conditions (IFM22015) so long as it remains within the regime.

Failure to meet these conditions can result in the company/group leaving the regime. If the breaches are minor, transient and not too frequent, companies/groups may remain in the regime, although in some cases, a tax charge is imposed on the REIT (see IFM27000 onwards).

Other tests are applied to the REIT while it is in the regime (for example, the ‘interest cover’ test) but failing to pass these usually results in a tax charge, not removal from the regime.

Conditions for joining the regime

In order to give notice to join the regime, the company or principal company of the group, must meet two ‘Company conditions’:

· it must be UK resident and,

· it must not be an open-ended investment company

These conditions are set out in CTA 2010/S523 and S524 - see IFM22010 for more detail.

As well as the two ‘Company conditions’ necessary to give notice to join the regime, the company giving notice must meet four further ‘Company conditions’ throughout every accounting period it is in the regime - see IFM22010 - 22015. However even if the REIT is not able to meet all these conditions on the first day or throughout the first day it is in the regime it might still be able to join the regime, for further details see IFM23010.

Conditions for remaining in the regime

To remain in the regime, the company/group must throughout the period have a property rental business that meets the conditions relating to the number and nature of the properties owned by the REIT (see IFM22020 onwards), meet two conditions in relation to the nature of its activities (Balance of Business conditions - see IFM22065), and a distribution obligation . See IFM22050 for more detail.

For a group of companies the principal company of the group must meet the six Company conditions. The other conditions apply to the business of the group as a whole, and there are no specific obligations on any of the companies that are subsidiaries of the principal company. Although the principal company is required to be UK resident, there is no restriction on the state of residence of other members of the group, nor on the countries in which they carry on their activities.

There is an additional condition that applies to the principal company of a Group REIT, to prepare three sets of financial statements covering the property rental business, residual and tax-exempt business of the group. This condition does not in general apply to a company UK-REIT, the exception is where there is a Joint Venture Look-Through notice in place between the company UK-REIT and a corporate joint venture (see IFM30000 onwards).