GREIT11015 - Group REITs: conditions to meet while in the regime

As well as meeting the three Company Conditions necessary to give notice to join the regime, to remain in the regime, the principal company must meet three further Company Conditions and one obligation – to produce financial statements in respect of the group.

To remain in the regime, the group must also meet two conditions in relation to the nature of its activities (Balance of business Conditions) and three conditions in relation to the nature of the group’s property rental business. The final condition is an obligation placed on the principal company to distribute 90% of the income profits of the group’s tax-exempt business.

Company Conditions

Once in the regime, the principal company must meet three further conditions throughout every accounting period it is the principal company of a Group REIT:

• it must not be ‘close’,
• the only shares it can have in issue are a single class of ordinary share capital and non-voting fixed rate preference shares and
• it must not be party to any loan where the results are dependent on the profits of the business.

These are set out in section 106(6) to (8), as modified by paragraph 5(1) Schedule 17 FA 2006. These conditions for the principal company of a Group REIT are the same as those that a single company UK-REIT must meet to remain in the regime. These are explained at GREIT02015.

Financial statement condition – paragraph 5(2) Schedule 17 FA 2006

The principal company must provide three sets of financial statements that are used to produce figures for other conditions the group as a whole must meet throughout each accounting period the group is in the regime. For more detail see GREIT12160.

Balance of business Conditions – section 108, as modified by paragraph 5(1) Schedule 17 FA 2006

This relates to the ratio of property rental business to other business carried on world-wide by the group. For each accounting period, 75% of the group’s world-wide activities by reference to asset values and to income must be property rental business. For more detail, see GREIT12010.

Tax-exempt business Conditions – section 107 as modified by paragraph 6 Schedule 17 FA 2006

These three conditions relate to the ‘UK property rental business’ of the group. For this purpose, the property rental business of group members is regarded a single business. This business must include at least three separate rental properties, no one property can be more than 40% of the total value of the properties in that business and owner-occupied property is excluded from the business. For more detail, see GREIT12005.

Distribution Condition – section 108(4) as modified by paragraph 7 Schedule 17 FA 2006

The final condition that must be met is the ‘distribution requirement’. The principal company of the group must distribute as property income dividends 90% of the income of the ‘tax- exempt business’ of group members. For more detail, see GREIT12025.