IFM21070 - Real Estate Investment Trust : Background : Group REITs: non-resident group members: property rental business

The regime conditions in sections 529 (conditions as to property rental business) and 531 CTA 2010 (conditions as to balance of business) look at the world-wide property rental business of the group members. These tests look at whether 75% of the group’s business is property rental and whether that business has at least three properties, with no one property representing more than 40% by value of the property rental business.

For the purposes of the section 529 conditions, the world-wide property rental businesses of the group members are treated as a single business. Any activity or business excluded by CTA 2010/S604 and S605 is also excluded from property rental business for this purpose.

Because the concepts in the definition of property rental business in CTA2010/S519 (1) operate only in the context of UK resident companies, the definition is extended for non-resident members of the group. The extension brings within the definition of property rental business, business that would fall within the definition, were the subsidiary UK resident (CTA 2010/ S519 (4)).

Note that for groups, the property rental business is not the same set of activities as its tax-exempt business. The former includes all the world-wide property rental activities of the group (subject to any Section 604 and 605 exclusions). The latter is restricted to the world-wide property rental activities of UK resident group members and to the UK property rental activities of non-resident members of the group, again subject to Section 604 and 605 exclusions.

Once the section 529 and 531 conditions have been met, the focus of the regime reduces to the parts of the group over which the UK has primary taxing rights. This is called the ‘UK business’ of the group. This includes all the activities of UK resident members of the group, together with those activities carried on in the UK by non-resident members of the group.

IFM21080 looks at how the rules of the regime apply to these non-resident members of the group: i.e. those that have a taxable presence in the UK. All other non-resident subsidiaries are not covered by the regime: for example, their property rental income is not included in working out the amount out of which 90% must be distributed by the principal company under deduction of basic rate tax (the Distribution Condition).