GREIT11330 - Groups: leaving the regime: automatic termination

If the principal company breaches Company Conditions 1,2, 5 or 6 in section 106 as modified for groups by paragraph 5 Schedule 17 FA 2006, the group automatically leaves the regime (section 130 FA 2006). Unlike all of the other conditions of the regime, there are no provisions that can be relied on to remain in the regime if these Company conditions are breached.

Where the principal company has breached one of these conditions, the regime will, in general, cease to apply to the group from the end of the accounting period before the breach occurs. The exception is where the group has been a UK-REIT for less than ten years - in which case HMRC can direct that a different date of cessation applies - see GREIT06040.

The events that result in automatic termination are:

• ceasing to be UK resident for tax purposes;
• becoming an open-ended investment company;
• issuing a new class of ordinary shares or any other type of share apart from non-voting relevant preference shares; and
• borrowing money on terms that effectively entitle the lender to a share of the profits.

Where any of these events occur, the principal company is required to notify HMRC that it no longer meets the condition as soon as practicable.