GREIT02075 - Conditions and Tests: Balance of business Conditions: Condition 2 (asset test)

The asset test applies to the assets of the company. At the start of each accounting period, at least 75% of the assets of the company must be involved in the tax-exempt business. In some cases, a company can fail this test but remain in the regime – see GREIT07005.

The meaning of an asset being involved in the tax-exempt business follows the definitions that apply for the Tax-exempt business Conditions in section 107 (see GREIT02020 to GREIT02045). This is property that is 'an estate, interest or right by the exploitation of which the [property rental] business is conducted'.

This means that the 75% includes only property, and does not include other types of assets, such as a car, that might be used as part of carrying on the property rental business. Neither does it include units in an overseas property unit trust, as the unit is not an estate, interest or right in land. The unit holder’s share of the value of the property held by the unit trust would qualify if the unit trust is transparent (and for a Group REIT, the group has 20% or more interest in the unit trust).

Valuation of assets

The assets are valued using IAS, but no account is taken of liabilities secured either generally or specifically against any of the assets. See GREIT02040 for more detail.

Property under development

A company may acquire land or property and spend time developing it. Provided the intention at the outset is for the building to be retained as an investment property, the value of the land/ property is included in the assets of the property rental business even though no rental income has been generated by the property during the development period.

Void periods

Even though a property may be generating no rental income for a period, it will still count as an asset of the property rental business provided the intention is to retain it as an investment property and re-let it.