GREIT06010 - Leaving the regime: effects of cessation: on tax-exempt business and accounting periods
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. This is done in two ways: one is to deem the tax-exempt property business of the company to cease for tax purposes; the other is to cause the accounting period of the company to come to an end for CT purposes on leaving the regime. For the effect of this on the availability of relief for losses, see GREIT06013.
Where a REIT demerges into two parts S126A FA 2006 sets aside the rules that would result in the demerged part leaving and rejoining the regime. One result is that no second entry charge is applied. A notice under S109 may be given even if the REIT does not expect to meet conditions 3 to 6 of S106 throughout the accounting period. If these conditions are not met within 6 months of the notice then the notice shall not have had effect.
Cessation of tax-exempt property business
On withdrawal, the tax-exempt property business of the company is treated as ceasing (section 131(1) FA 2006). This means that any property business carried on by the company after it has left the regime is a newly set up and commenced business for tax purposes. This deemed cessation does not however apply to the other activities carried on by the company.
One accounting period ends/new one begins
When the company leaves the regime, the accounting period of C (residual) comes to an end (section 131(5)), as does the accounting period of C (tax-exempt) (because section 131(1) deems its business to cease on leaving the regime). This is the final accounting period for C (tax-exempt). A new accounting period starts on the first day the regime ceases to apply to the company. This is the first accounting period of C (post-cessation).
Note that 'accounting period' is a term used for computing profits and assessing CT, and is defined in Part 2, Chapter 2 CTA 2009. It is not necessarily the same period as the interval between two accounting dates. Although an 'accounting period' always comes to an end on an accounting date, there are several occasions when an accounting period starts on a different day. The requirement for a new accounting period to begin applies only for CT purposes: there is no requirement that the company changes the date to which it draws up its accounts to reflect the new accounting period for CT purposes.
Group REITs
Analogous rules apply to the members of a group that leaves the regime and to companies that leave a Group REIT - see GREIT11310 for details.
