IFM29025 - Real Estate Investment Trust : Miscellaneous: indirect ownership of property: Property rental business conditions

Where property is held indirectly, the nature of the entity through which the property is held generally determines its treatment for the property rental business conditions.  For the balance of business conditions, see IFM29015, and for the tax treatment of income and gains see IFM29020.  

Property conditions

The two property conditions (see IFM22025 and IFM22035) are that a qualifying property rental business must include three or more properties and that no one property can be more than 40% of the value of properties involved in the property rental business (CTA2010/S529). 

The two property conditions must be met by the property rental business of the UK-REIT.  This means that qualifying property owned directly by the company/group and indirectly via a tax transparent entity counts. 

The property rental businesses of the members of the group REIT are treated as a single business for the property rental business conditions.  This means that a property owned directly by group members counts as a single property even if ownership is spread across several members of the group. 

Property owned by companies that are not members of the REIT group does not count.

Where there is a Joint Venture Look-Through notice in place (see IFM30015), the properties held by the joint venture company are taken into account in the property rental business conditions in the same way as property owned by a company that is a member of a group UK-REIT. Where there is no Joint Venture Look-Through notice in place, the legal nature of the vehicle through which the venture is carried out will determine the outcome.

Distribution condition

A UK-REIT is required to distribute 100% of PIDs received from other UK REITs and 90% of the profits of its tax-exempt property rental business as PID (see IFM22050) CTA2010/S530.  The extent to which income from indirectly held property is included in this depends on the legal nature of the entity (see IFM29020).  Where the entity is tax-transparent (e.g. a partnership), qualifying property rental income arising in the entity is included, to the extent of the company’s interest in the entity.  If the entity is opaque (e.g. a company that is not a joint venture company in respect of which a look through notice has been given), property rental income of the entity is not included in the amount that has to be distributed. 

For a group UK-REIT, the tax-exempt property rental business income is the aggregate of the property rental business income of each group member that carries on a qualifying property rental business, to the extent of the group’s interest in the group member.  The extent to which income from indirectly held property is included in this depends on the legal nature of the entity (see IFM29020 and above).