IFM21020 - Real Estate Investment Trust : Background: Key Concepts: Property Rental Business

For the purposes of the UK-REIT regime, property rental business is defined at CTA2010/S519 as:

business that is or forms part of

1 a. a UK property business (within the meaning of CTA2009/S205), or

b. an overseas property business (within the meaning of CTA2009/S206)

subject to specified exclusions listed in CTA2010/S604 and 605

This limits ‘property rental business’ to the generation of income from land as a source of rents or other receipts as defined in CTA 2009/S207 and therefore, income arising as a result of the occupation of land, which is not chargeable as property business income are not included.

For example, farming or running a hotel are chargeable as trades so cannot be within the definition of ‘property rental business’. For more details on the types of business or income that are excluded from being within the definition of property rental business, see IFM21025.

Some types of business or income, which although chargeable to tax as property income, are nonetheless, excluded from the definition of property rental business, such as rent from the siting of an oil pipeline. These are listed in CTA 2010/S604 and 605 (see IFM21025 onwards for details).

A property business with ‘tied premises’ as defined in CTA 2009/S42 may fall within the definition of a ‘property rental business’ by virtue of CTA 2010/S519(2) which provides that the requirement that income in connection with ‘tied premises’ is treated as part of the trade is ignored.

Detailed guidance on the property business rules can be found in the Property Income Manual (PIM).

(See IFM24005)

‘Qualifying’ or ‘ring fence’ activities

Activities that come within the CTA 2010/S519 definition of ‘property rental business’ are generally referred to as ‘qualifying’ activities. Only when the business also qualifies as tax-exempt, should the activities be referred to as being ‘ring fence’ activities.

‘Property rental business’ for Group REITs

For single company UK-REITs, the property rental business and the ring fence activities are one and the same. For a group of companies that is a UK-REIT, the two may not be. The term ‘property rental business’ for a group can include overseas property and property held by non-resident members of the group. Such income is only part of the ‘ring fence’ activities of the group and exempted from UK tax by CTA 2010/ Part 12 if those activities are within the charge to UK taxation ,for example, a non-resident subsidiary which carries on UK property rental activities.