When the company leaves the regime the property rental
business of C (tax-exempt) is treated as ceasing on the last day
the regime applies to it. The assets that were involved in C
(tax-exempt)’s business are treated as though they had been
disposed of and reacquired by C (post-cessation)'s business
(section 131(2) FA 2006).
An asset is ‘involved in the business’ for this
purpose if it would be a property involved in the business for the
purposes of the Tax-exempt business Conditions in section 107
– see
GREIT02025.
The deemed disposal of assets takes place at market value, which
takes the same meaning as it does for TCGA purposes (section 142(e)
FA 2006). This is the price that the assets might reasonably be
expected to fetch on a sale in the open market with a willing buyer
and seller negotiating on the basis of full information (see
CGM16330).
If the deemed sale and reacquisition would result in a gain
for C (tax-exempt), this is not treated as a chargeable gain for
TCGA purposes because the exemption from tax on capital gains in
section 124 FA 2006 (section 111(7) FA 2006) applies to gains on
these disposals. If the result is a loss, that loss is not
allowable for TCGA purposes.
Companies that are in the regime have to be stock
exchange-listed. This means that UK listed companies will be
following RICS (Royal Institute of Chartered Surveyors) guidelines
in valuing the properties on their books, and valuations will
therefore be professional and recent. As a rule of thumb, values
shown in the published accounts should be a reliable starting point
for determining market value for this purpose. For guidance on
valuing property, see CGM74000.
This deemed sale and reacquisition effectively sets a new
base cost for capital purposes going forward. For interactions of
cessation provisions and capital gains claims and elections that
can be made, see
GREIT05050 onwards.
For capital allowance purposes, the transfer takes place at tax
written-down value such that no balancing charges or allowances
arise to C (tax-exempt). The effect of this is that C (post-
cessation) property business takes over the capital allowance
position of C (tax-exempt)'s business.
For interactions of cessation provisions and capital
allowances claims and elections that can be made, see
GREIT04010.
The extent to which property held via partnerships etc is treated as sold and reacquired at cessation will depend on the nature of the entity through which it is held. For more information on this, see GREIT03030.
Analogous rules apply to the assets held by members of a group when it leaves the regime and to assets held by a company that leaves a Group REIT – see GREIT11320 for details.
