GREIT13045 - Joint ventures: Joint Venture Look-Through Notice: change in percentage interest in joint venture company

Increase in % interest in the joint venture company

To give notice for ‘look-through’ treatment, the venturing company or venturing group must have an interest of 40% or more in the joint venture company. If the interest increases after the notice becomes effective, a higher proportion of the assets, profits etc of the joint venture company are taken into account in the Tax-exempt business and other conditions and tests.

Where the interest at the time the notice becomes effective was over 40%, subsequently decreases, but remains above 40%, a lower proportion of the assets, profits etc of the joint venture company are taken into account in the Tax-exempt business and other conditions and tests. There are no provisions for refund of Entry Charge in these circumstances.

In some circumstances, additional Entry Charge may be payable. For venturing groups, these are where the group’s interest in the joint venture company increases such that it becomes a 75%/ effective 51% subsidiary of the venturing group (se below). For venturing companies, these are where the venturing company becomes or joins a Group REIT and the percentage interest in the joint venture company has increased (see GREIT13050). The rules are set out in regulation 14 of SI 2006/2866.

Joint venture company becomes a member of the venturing group

If the venturing group increases its stake in the joint venture company such that the company becomes a member of the group, an Entry Charge becomes payable under paragraph 10 Schedule 17 FA 2006. The charge is however adjusted to reflect the Entry Charge paid by the joint venture company when the original notice became effective (regulation 14(6) and (7) SI 2006/2866).

The adjustment is made by reducing the Case VI notional income measured by reference to the market value of the assets involved in the property rental business of the joint venture company at the date it joins the group by the amount of notional income brought into charge when the original notice became effective.

Example

Venturing group V has a 40% interest in joint venture company J. At the date the original look-through notice became effective, the main CT rate was 30% and the market value of the assets involved in J’s property rental business was 10,000.

The Entry Charge paid by J was 80 (based on notional income of 266 = 2% x 40% x 10,000/0.3 chargeable at 30%). On 31 January 2020, V increases its interest in J to 80%. At that date, the main CT rate is 25% and the market value of the assets involved in J’s property rental business is 20,000. The Entry Charge payable by J would be 320 (based on notional income of 1,280 = 2% x 80% x 20,000/0.25 chargeable at 25%). To reflect the Entry Charge originally paid by J, the notional income is reduced by 266 and the Entry Charge at 1 January 2020 is 253.