Once a company has given notice that it wants the UK-REIT rules
to apply, they continue to apply to the company until a notice to
withdraw from the regime is given either by the company (see
GREIT06020) or by HMRC (see
GREIT06025). If a company breaches
certain of the Company Conditions, application of the UK-REIT rules
to the company is terminated automatically (see
GREIT06030).
No ‘exit charge’ is payable, although the tax
treatment of some disposals in the post-cessation period may be
affected (see
GREIT06015). The requirement to pay
distributions net of basic rate tax continues after the company has
left the regime, until it has paid out all the profits of its
tax-exempt business.
The date from which the UK-REIT rules cease to apply depends on
what prompted cessation. In general, if the company leaves the
regime voluntarily, the regime ceases to apply from a date after
the company gives notice. If HMRC gives notice that the regime no
longer applies to the company, in most cases, the regime will cease
to apply from a date before the notice is given. If the termination
is automatic, the regime ceases to apply from the end of the
accounting period before the breach of condition occurred.
There are exceptions to the general rules for date of
cessation when the company has been a UK-REIT for less than ten
years and the cessation is a result of either an HMRC termination
under section 129 FA 2006 or automatic termination as a result of
breaching a Company Condition (section 130 FA 2006) – see
GREIT06035.
On leaving the regime, a line is drawn between the property
rental activities of the company after leaving the regime, and
those that are carried on and exempt from tax while the company is
within the regime. All the assets that move out of the tax-exempt
business are treated as though they have been sold by the company
just before it leaves the regime, and immediately reacquired by the
post-cessation business after it leaves.
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.
Any losses that may have arisen in the tax-exempt business
cannot be carried forward for use against future profits of the
post-REIT property business of the company. Losses on non-ring
fence activities are however available for use against post-REIT
profits in the normal ways.
Losses on disposal of property of the tax-exempt business
cannot be carried forward for use against chargeable gains arising
after the company has left the regime. Losses on disposal of
non-ring fence assets can be carried forward for use against
chargeable gains that accrue after the company has left the regime.
Losses in the early years of the post-cessation property
business cannot be carried back and off-set against either profits
of the tax-exempt business or profits on other pre-cessation
activities.
Analogous rules apply to groups that leave the regime and to companies that leave a Group REIT – see GREIT11300 onwards for details.
