IFM22073 | Real Estate Investment Trust: conditions and tests: balance of business conditions: planning obligations CTA2010/S531(4)(d)

For accounting periods beginning on or after 1 April 2022, when applying the Balance of business conditions in relation to the profits (see IFM22070) and assets (see IFM22075) of the REIT, activities undertaken to comply with obligations under S106 of the Town and Country Planning Act (“S106 activities”) might be excluded as provided for by CTA2010/S531(4)(d) and S531(7A)(b).

This exclusion applies to profits arising to, or assets held within, the residual business as a result of S106 activities undertaken in the course of the property rental business. This reflects the fact that the residual business S106 activities would only be undertaken to pursue the development of property rental business assets.

Where profits arise to, or assets are held in connection with, the property rental business as a result of S106 activities, these are not excluded and are taken into account for the balance of business conditions.

Therefore an assessment needs to be made of whether the profits or assets arising in connection with the S106 activities are of the property rental business or the residual business.

Examples:

REIT X invests in commercial property including a new office block development. To comply with S106 Town and Country Planning Act obligations, the development will include affordable housing. REIT X does not intend to retain residential property investments and will dispose of the housing units immediately.

The development and disposal of the housing units are part of the residual business of REIT X. However, under CTA2010/S531(4)(d) and 7A(b), these assets and profits will not be taken into account when applying the balance of business conditions.

REIT Y is investing in a new development of student accommodation in the same town and also has a S106 obligation to include affordable housing. REIT Y will hold all of the residential accommodation in the development within its property rental business investments. The assets and any profits arising from the affordable housing built for planning reasons therefore relate to REIT Y’s property rental business and will be taken into account when applying the balance of business conditions.