GREIT04510 - Non tax-exempt income: disposal of ring fence assets

General rule

The general rule for UK-REITs is that the gain arising on disposal of an asset that was involved in the tax-exempt business is exempt from tax.

Gains on disposals of assets not involved in the tax-exempt business are chargeable to CT in the normal way (except that the full CT rate is charged because small companies rates are not available – section 119(2) FA 2006). Disposal of shares in a subsidiary member of the Group REIT will give rise to a CT charge, even though the subsidiary might have been carrying on a tax-exempt business.

Exceptions

There are two exceptions to the rule that disposals of assets of the tax-exempt business are tax-free. One is the disposal of ring fence properties within 3 years of completion of a development (section 125(7) FA 2006) – see GREIT04520. The other is where a ring fence property is disposed of by way of trade – see GREIT04515. In both cases, the transaction is treated as though the assets had never been in the ring fence and the profit, gain or loss is treated as arising in the taxable part of the company (section 125(5) and (6) FA 2006).

The rental income and associated expenses that have been included in the tax-exempt business profits are left undisturbed – see GREIT04050 for more detail. If the asset was owned by the company at the date it joined the regime, deemed sale and reacquisition at entry are ignored and the company can claim repayment of the amount of Entry Charge relating to the property (see GREIT04055).