IFM22020 | Real Estate Investment Trust : Conditions and Tests: the property rental business: summary

To join and remain in the regime, a UK-REIT is required to meet the property rental business condition throughout each accounting period of the company or group (CTA2010/S527(2)(b) and (3)(b)). This means meeting both conditions A and B, or, alternatively, from 11 July 2023, condition C.

These conditions are set out in CTA2010/S529:

Condition A. The property business involves at least three qualifying properties (IFM22025),

and

Condition B. No single property represents more than 40% by value of the assets of the property rental business (IFM22035),

or

Condition C. The property rental business involves at least one property, which is a commercial property with a value of £20 million or more at any time from the relevant time (see IFM22043).

For these conditions, the CTA2010/S519 definition of 'property rental business' is used. For more detail on the definition and exclusions, see IFM21020 onwards. Note that for UK-REIT purposes, the UK and overseas property businesses of a company are treated as being a single business.

For a Group REIT, the property rental businesses of all the members of the group are treated as being a single business (CTA210/S529(3)). Property rental business conditions A and B or condition C must be met by that single business. This means that each member of the group does not have to meet these conditions on their own.

The property rental business condition must be met “throughout” the entirety of an accounting period. If it is met only for part of a period, for example because a property is sold, the condition will be breached (see IFM27035 for examples).

The REIT must notify HMRC as soon as reasonably practical if the property rental business condition ceases to be met (CTA2010/S561). Failing to meet the property rental business condition does not result in automatic removal from the regime, provided the breach is minor. Repeated breaches or a serious breach of the property rental business condition may result in removal from the regime (see IFM27030)