IFM24515 - Real Estate Investment Trust : Residual income: disposal of assets used in the property rental business by way of trade: CTA2010/S555

Where the disposal of an asset that was used in the property rental business amounts to a trade disposal, the property is treated as though it had never been involved in the property rental business. This is because the disposal gives rise to income that is chargeable as trading income, and therefore does not qualify as income of the property rental business. For background on when disposal of a property amounts to trade in the context of UK-REITs, see IFM24030 onwards.

There is no deemed sale of the asset by the property rental business and reacquisition because CTA2010/S555(2) is set aside for ‘trading’ disposals by CTA2010/S555(1) (b).

In working out the amount of profit to be brought into account as trading income, no deduction is allowed for expenses that have already been taken into account in arriving at profits of the property rental business. The cost of acquisition of the property is based on the original cost to the company of the property (without the benefit of indexation relief as this is a trading disposal). This also applies where the property was owned by the company when it joined the regime, as the CTA2010/S536(2) deemed sale and reacquisition at entry are set aside for this purpose (CTA2010/S556(2)). For companies/groups entering the REIT regime before 17th July 2012 the company can claim repayment of any Entry Charge paid in respect of the property (CTA2010/S556(4).