GREIT04515 - Non tax-exempt income: disposal of ring fence assets by way of trade

Where the disposal of an asset that was used in the tax-exempt business amounts to trade, the property moves across the ring fence, from the tax-exempt business to the taxable part of the company. This is because the disposal gives rise to income that is chargeable under Schedule D Case I, and therefore does not qualify for the ring fence. For background on when disposal of a property amounts to trade in the context of UK-REITs, see GREIT04030 onwards.

When the property crosses the ring fence on this occasion, there is no deemed sale and reacquisition (section 125(2) is set aside for ‘trading’ disposals by section 125(1) FA 2006).

In working out the amount of profit to bring into account under Case I, no deduction is allowed for expenses that have already been taken into account in arriving at profits of the tax-exempt business. The cost of acquisition of the property is based on the original cost to the company of the property. This also applies where the property was owned by the company when it joined the regime, as the section 111(2) FA 2006 deemed sale and reacquisition at entry are set aside for this purpose (section 125(6)(a) FA 2006).