GREIT11200 – Groups: entering the regime: overview

Groups joining the regime

The UK-REIT regime is elective, and can apply to a single company and to a group of companies (referred to as a ‘Group REIT’ in this guidance).

For the tax exemptions to apply to the property rental business of members of a Group REIT, the principal company and the group must meet the necessary conditions and the principal company must give notice that it wants the UK-REIT rules to apply to the group of which it is the parent, to its distributions and to the investors who receive those distributions. Note that the regime applies to a group from the date specified in the notice, and not from the day the notice is given.

On joining the regime, a line is drawn between the property rental activities of members of the group before entering the regime, and those that are carried on and exempt from tax while the regime applies. All the assets that move into the tax-exempt business of a group member are treated as though they have been sold by the company just before the group joins the regime, and immediately reacquired by the tax-exempt business after it joins.

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.

An Entry Charge is payable at 2% of the value of property assets that are moved to the tax- exempt business. This is payable at the same time as CT due for the first accounting period that the group is in the regime. A group joining the regime may choose to pay the Entry Charge in four yearly instalments, in which case the charge is increased slightly to take account of the time value of money.

The group remains in the regime until either a notice to withdraw from the regime is given by the principal company or by HMRC or the principal company or group breaches a qualifying condition in such a way that the regime ceases to apply.

Minority share holdings

Not all members of the group will be 100% owned by the principal company or other group members. In this case, the regime applies only to the portion of the company that is owned by group members. For example, company S is 80% owned by the group and has property assets with market value 1,000 on the date the group joins the regime. The Entry Charge payable by the residual part of S is 80% x 1,000 x 2% = 16.

Non-resident group members

To the extent that a non-resident member of the group carries on UK property rental business, the profits (income and gains) are exempt from UK tax (see GREIT11100). Similar consequences in terms of deemed sale and reacquisition of assets and Entry Charge apply to the assets of the non-resident group member that are involved in a UK property rental business carried by it.