GREIT03005 - Entry to the regime: overview

The UK-REIT regime is elective. For the tax exemptions to apply to its property rental business, a company must meet the necessary conditions but must also give notice that it wants the UK-REIT rules to apply to it, its distributions and investors who receive those distributions. Note that the regime applies to the company from the date specified in the notice, and not from the day the notice is given.

On joining the regime, a line is drawn between the property rental activities of the company before entering the regime, and those that are carried on and exempt from tax while the company is within the regime. All the assets that move into the tax-exempt business are treated as though they have been sold by the company just before it joins the regime, and immediately reacquired by the tax-exempt business after it joins.

This sale and reacquisition is deemed to take place at market value but does not give rise to a chargeable gain (or allowable loss). For capital allowance purposes, the transaction is deemed to take place at a value that results in no balancing charges or allowances – and 'stand-in- shoes' treatment applies to the 'new' owner.

An Entry Charge is payable at 2% of the value of property assets that are moved to the tax- exempt business. This is payable at the same time as CT due for the first accounting period that the company is in the regime. A company joining the regime may choose to pay the Entry Charge in four yearly instalments, in which case the charge is increased slightly to take account of the time value of money.

The company remains in the regime until either a notice to withdraw from the regime is given by the company or by HMRC or the company breaches a qualifying condition in such a way that the regime ceases to apply.