GREIT06013 - Leaving the regime: effects of cessation: on availability of relief for losses

On leaving the regime, a line is drawn between the property rental activities of the company after leaving the regime, and those that are carried on and exempt from tax while the company is within the regime. This results in restriction on the availability of tax relief for losses.

Effect of cessation on losses

Losses etc relating to the tax-exempt property businesses cannot be carried forward for use in working out profits of any post-REIT property business. This is because the tax-exempt property rental business is treated as ceasing once the company leaves the regime (see GREIT06010).

Neither can losses arising in the first accounting period of tax-exempt business be carried back to reduce profits of accounting periods before it left the regime. This is because post-REIT property business is a different business, carried on by a different person (since C (tax-exempt) is deemed to be a company separate from C (post-cessation)).

To the extent that the company, while a UK-REIT, carried on activities other than property rental, these are regarded as a business that carries on uninterrupted, before, during and after the company is in the regime. If the company had a trading loss in the final accounting period before it leaves the regime, that loss can be carried forward in the normal way and used against profits of the trade as carried on by C (post-cessation) after the company has left the regime.

If the company has unused capital losses, including losses on disposal of non-ring fence assets while it was in the regime and losses that arose on pre-entry disposals of rental property, they can be carried forward and used to reduce chargeable gains that may arise to C (post-cessation). This is because C (pre-entry), C (residual) and C (post-cessation) are not deemed to be separate companies.

Group REITs

Analogous rules apply to the losses of members of a group that leaves the regime and to losses of companies that leave a Group REIT - see GREIT11315 for details.