GREIT05037 - Capital gains: company ceasing to be a member of a group (section 179 TCGA): examples

Company leaves one group and joins a Group REIT

T and Z are members of group V. Z transferred a property to T on 30 June 2005 at a no gain/no loss value of 1,500. The market value at that date was 2,000. An existing Group REIT acquires T on 31 May 2007, when the market value of the property is 2,300. All companies have 31 December accounting dates.

The sale of T by V triggers a deemed disposal and acquisition of the property by T at its market value on 30 June 2005 (section 179(3) TCGA). The gain (before indexation) of 500 is treated as accruing to T on 1 January 2007 (section 179(4), being later than the date of the section 179(3) deemed sale and reacquisition). This gain is taxable on T in the accounting period that runs from 1 January to 31 May 2007 (the old one ceases and a new one begins when the UK-REIT regime first applies to T).

When T joins the Group REIT, there is another deemed sale and reacquisition of the property, at market value 2,300 (section 111(2) and (3) FA 2006). The gain of 300 between the section 179(3) deemed sale and reacquisition and the section 111(2) one, is ignored (section 111(7) FA 2006). T will pay an Entry Charge of 46 in respect of the property.

Company leaves a Group REIT

T and A are members of Group REIT G. A transferred a property to T on 30 June 2007 at a no gain/no loss value of 1,500. The market value at that date was 2,000. A company (which is not a UK-REIT) acquires T on 31 May 2008, when the market value of the property is 2,300. All companies have 31 December accounting dates.

The sale of T by G triggers a deemed disposal and acquisition of the property by T at its market value on 30 June 2007 (section 179(3) TCGA). The gain (before indexation) of 500 is treated as accruing to T on 1 January 2008 (section 179(4), being later than the date of the section 179(3) deemed sale and reacquisition). This gain accrues to T in the accounting period that runs from 1 January to 31 May 2008 (the old one ceases and a new one begins when the UK-REIT regime ceases to apply to T). This gain accrues while T is within the regime, and is therefore exempt under section 124 FA 2006.

When T leaves the Group REIT G, there is another deemed sale and reacquisition of the property, at market value 2,300 (section 131(2) and (3) FA 2006). The gain of 300 between the section 179(3) deemed sale and reacquisition and the section 131(2) one, is also ignored under section 124 FA 2006. The base cost of the property to T for future disposals is 2,300, and there are no deferred gains waiting to resurface.