GREIT01020 - Background: key concepts: property rental business

For the purposes of the UK-REIT regime, property rental business is defined at section 104 FA 2006 as:

business that is or forms part of

subject to specified exclusions listed in Schedule 16 FA 2006.

This limits 'property rental business' to the exploitation of land etc for rent (as follows from the Schedule A definition in section 15(1) ICTA) and thus excludes income arising as a result of the occupation of land, which is not chargeable under Schedule A.

For example, farming or running a hotel are chargeable as trades under Case I Schedule D so cannot be within the definition of 'property rental business'. For more detail on income or business that is excluded because it is not Schedule A (or its overseas equivalent), see GREIT01025.

Some types of business or income, which although chargeable to tax under Schedule A, are nonetheless, excluded from the definition of property rental business, such as rent from the siting of an oil pipeline. These are listed in Schedule 16 FA 2006 (see GREIT01025 onwards for details).

'Qualifying' or 'ring fence' activities

Activities which come within the section 104 definition of 'property rental business' are generally referred to as 'qualifying' activities. Only when the business also qualifies as tax- exempt, should the activities be referred to as being 'ring fence' activities.

'Property rental business' for Group REITs

For single company UK-REITs, the property rental business and the ring fence activities are one and the same. For a group of companies that is a UK-REIT, the two may not be. The term 'property rental business' for a group can include overseas property held by non-resident subsidiaries. Income and gains from this activity not within the scope of UK taxation are not part of the 'ring fence' activities of the group that are exempted from UK tax by Part 4 of FA 2006.