GREIT12020 – Group conditions and rules: Balance of business Conditions: asset test
The asset test compares the value of the property involved in
the property rental business of the group with the total value of
assets of the group, used for all its activities. The property
rental business assets must be 75% or more of the total assets of
the group.
The definition of asset used in the property rental business
is in section 107(7)(a) FA 2006. It means an estate, interest or
right by exploitation of which the business is conducted (see
GREIT01020 for more information on
this).
For the definition of 'property rental business' for this
purpose, see
GREIT12000. Note that this is not
restricted to the property rental business that is exempt from tax
as a result of the application of the UK-REIT legislation.
Valuation of assets
The assets are valued using IAS, but no account is taken of
liabilities secured either generally or specifically against any of
the assets. For example, if a property that could be sold for
£1,000 has a mortgage secured against it of £300, the
value for the asset test is £1,000. If a creditor has a
£500 floating charge on the assets of the group, that too is
ignored for this purpose.
If IAS offers a choice between cost basis and fair value,
fair value must be used.
Intra-group balances
Intra-group balances and holdings are generally ignored. A part of an intra-group balance etc is not ignored if non-group members own shares in subsidiaries. The amount that is not ignored is the percentage represented by the beneficial interest in the subsidiary that is owned by non-group members. Beneficial entitlement is measured by reference to the beneficial entitlement to profits available for distribution to shareholders.
Use of financial statements of G (property rental business) and G (residual)
The value of the assets of the property rental business for this purpose is as shown in the Financial Statement for G (property rental business) for the relevant accounting period. The total value of the group's assets is the sum of the asset value shown in the Financial Statement for G (property rental business) for the relevant accounting period and the asset value shown in the Financial Statement for G (residual) for the same accounting period.
Entities that are not members of the ‘group’
Memebers of the group (i.e. 75%/ effective 51% subsidiaries of the principal company) may have interests in other entities. The treatment of the group members’ interests in these other entities (and, where apropriate, their underlying assets) flows from how the interests are dealt with in the Financial Statements for G (property rental business) and G (residual) (see GREIT12140).
