IFM29220 - Real Estate Investment Trust : Miscellaneous: availability of group relief: CTA2010/S601

Background: the ring fence

The UK-REIT legislation sets up a ring fence between the property rental business and other activities carried on by any one company covered by the UK-REIT rules. (CTA2010/S541)  The ring fence prevents losses from the property rental business activities being used to reduce the profits of residual activities.   For Group UK-REITs, this concept is taken one step further, to prevent group relief etc. from allowing a loss in the property rental business activities of one group member to be set against profits of residual activities of another group member. (CTA2010/S601)

To achieve this, that part of a group carrying on the property rental business is treated as a separate group from the other parts of the group, the pre-entry group, the group so far as it carries on residual business and the post-cessation group, for the purposes listed in section CTA2010/S601(2).

Provisions affected

These are:

-        TCGA1992/S171 and S171A-C (actual or notional transfers of assets within a group),

-        TCGA1992/S179A and S179B (reallocation or roll-over of gain within a group),

-        CTA2010/Part 5 and Part 5A (group relief and group relief for carried forward losses),

-        CTA2009/Part5/Chapters 4 and 6 to 8 (loan relationships),

-        CTA2009/Part 7 (derivative contracts), and

-        CTA2009/Part 8 (intangible assets). 

 

The effect of deeming the group carrying on the property rental business to be a separate group for these purposes means that transfers of assets across the ring fence will generally take place at market value. 

 

The inclusion of a provision in this list does not prevent the provision operating when losses are surrendered or assets etc. transferred between members of the same deemed group.  Although less likely to arise in practice, neither does inclusion in this list prevent the provision from operating between members of the pre entry group, the residual group and the post cessation group.   

 

See also IFM29200 for the application of TCGA1992/S171 where a company with 75% subsidiaries joins the regime as a company UK-REIT rather than a Group UK-REIT.