GREIT04520 - Non tax-exempt income: treatment of disposals: three year development rule

The three-year development rule operates where a company, having entered a UK-REIT regime, develops a ring fence property and sells it within three years of completing the development. For more detail on the rule, see GREIT04050. The rule does not say that a such sale is automatically to be treated as a trading transaction; it merely moves it from the tax-exempt part of the company to the taxable part.

Once in the taxable part of the company, the disposal may be either part of a trade or adventure in the nature of trade, or a disposal that gives to a capital gain. It will depend on how the Badges of Trade apply to the facts of the transaction. If the transaction does amount to trade, then the consequences, outlined above, apply.

If the transaction is one that gives rise to a capital gain, the chargeable gain is based on the difference between the sale proceeds and the original cost of the property to the company. As with transactions that are trading, the deemed sale and reacquisition on crossing the ring fence and on entry to regime are set aside.