GREIT07055 - Breaches of conditions: Balance of business Conditions

Two conditions of the regime relate to the amount of qualifying property rental business carried on by the UK-REIT compared with non-qualifying business. There are no additional tax charges as a result of breaching either condition, but if they are broken by too much or for too long, the regime ceases to apply. This is set out in regulation 7 SI 2006/2864.

Breaching the income test

The income arising from the tax-exempt business (for a single company UK-REIT) or the property rental business (for a Group REIT) must be at least 75% of the total income of the group or company (Balance of business Condition 1 – see GREIT02070 for detail). This test applies to the accounting period as a whole.

If the UK-REIT fails the income test for an accounting period, the company or group may remain in the regime provided the income of the tax-exempt or property rental business has not fallen below 50% of the total for the accounting period. If it falls below 50%, the breach is regarded as serious – see GREIT07060.

The income of the tax-exempt or property rental business can remain between 50% and 75% of the total for the following accounting period without triggering termination of the regime.

Remaining below 75% but above 50% for two consecutive accounting periods counts as a single occasion on which regulation 7 is relied upon to remain in the regime.

Breaching the asset test

The other Balance of business Condition is that 75% of the assets of the company or group must be involved in the tax-exempt or property rental business (Balance of Business Condition 2 – see GREIT02075 for detail). This test must be met at the start of each accounting period

If the UK-REIT fails this test at the start of an accounting period, the company or group may remain in the regime provided the value of the assets involved in the tax-exempt or property rental business has not fallen below 50% of the total at that date. If it falls below 50%, the breach is regarded as serious – see GREIT07060.

The value of the assets involved in the tax-exempt or property rental business can remain between 50% and 75% of the total at the start of the following accounting period without triggering termination of the regime.

Remaining below 75% but above 50% at the start of two consecutive accounting periods counts as a single occasion on which regulation 7 is relied upon to remain in the regime.