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HMRC internal manual

Investment Funds Manual

Real Estate Investment Trust : Conditions and Tests: Balance of business Conditions (CTA2010/S531)

The Balance of business conditions relate to the ratio of property rental business to other business carried on by the company or group, as set out in CTA 2010/S531.  The aim of this rule is to ensure the focus of the UK REIT is on holding and managing property, whilst recognising that some amount of other types of assets will be held and other types of income or activity will take place as part of the efficient management of the property rental business. There is however no restriction on the types of assets or other activity undertaken by the UK REIT. 

For each accounting period, 75% of the REIT’s activities by reference to profits (Balance of business Condition A) see [The Balance of business conditions relate to the ratio of property rental business to other business carried on by the company or group, as set out in CTA 2010/S531.  The aim of this rule is to ensure the focus of the UK REIT is on holding and managing property, whilst recognising that some amount of other types of assets will be held and other types of income or activity will take place as part of the efficient management of the property rental business. There is however no restriction on the types of assets or other activity undertaken by the UK REIT. 

For each accounting period, 75% of the REIT’s activities by reference to profits (Balance of business Condition A) see](https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm22070) and to asset values (Balance of business Condition B) see [The Balance of business conditions relate to the ratio of property rental business to other business carried on by the company or group, as set out in CTA 2010/S531.  The aim of this rule is to ensure the focus of the UK REIT is on holding and managing property, whilst recognising that some amount of other types of assets will be held and other types of income or activity will take place as part of the efficient management of the property rental business. There is however no restriction on the types of assets or other activity undertaken by the UK REIT. 

For each accounting period, 75% of the REIT’s activities by reference to profits (Balance of business Condition A) see [The Balance of business conditions relate to the ratio of property rental business to other business carried on by the company or group, as set out in CTA 2010/S531.  The aim of this rule is to ensure the focus of the UK REIT is on holding and managing property, whilst recognising that some amount of other types of assets will be held and other types of income or activity will take place as part of the efficient management of the property rental business. There is however no restriction on the types of assets or other activity undertaken by the UK REIT. 

For each accounting period, 75% of the REIT’s activities by reference to profits (Balance of business Condition A) see](https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm22070) and to asset values (Balance of business Condition B) see](https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm22075) must relate to property rental business.

‘Property rental business’ is the property rental business (IFM21020) of the REIT that meets the Property rental business Conditions in CTA 2010/S529 (IFM22020).

Failure to meet either of these Balance of business conditions can result in the company or group leaving the regime.  If the breach is minor, the company or group may be able to remain in the regime – see IFM27005.

Group REITs

For a Group REIT, the conditions are applied at the group level. The profits condition must be met in respect of each accounting period of the principal company of the group. The asset condition must be met at the beginning of each accounting period of the principal company of the group following election into the regime.  The values to be used are based on figures shown in the financial statements for the group’s property rental business and the group’s residual business. This means that it is the worldwide assets and profits that are considered in the balance of business tests. The property rental business of foreign subsidiaries includes those businesses that fall within the REIT definition of property rental businesses.

For REITs with interests in joint ventures the Joint Venture Company or group of companies also has to meet the balance of business tests.  The balance of business profits and assets tests are applied to a REITs interest in a joint venture by CTA2010/S591.