IFM22033 - Real Estate Investment Trust Conditions and Tests: Property rental Business Conditions: Indirectly Held Property: CTA2010/S529

This page looks at how indirectly held property is treated for the purposes of two of the conditions that must be met for the property rental business to be a tax-exempt business being those in respect of the number of properties (Property rental business Condition A - see IFM22025) and the relative values of the properties involved in that business (Property rental business Condition B- see IFM22035). For more background on treatment of interests in entities, see IFM29010 onwards.

Partnerships

A UK-REIT’s share of a property owned via a partnership will count as property involved in the property rental business. In applying conditions A and B the property held by the partnership is taken into account. For example where a UK-REIT has a 50% interest in a partnership which has a property rental business involving a shopping centre with 20 units, each capable of being leased separately and no one unit represents more than 40% of the value of the shopping centre, then conditions A and B are met.

Joint ventures

Where there is a Joint Venture Look-Through notice in place (see IFM30015), the properties held by the joint venture company are taken into account in the property rental business conditions in the same way as property owned by a company that is a member of a Group REIT. Where there is no Joint Venture Look-Through notice in place, the legal nature of the vehicle through which the venture is carried out will determine the outcome.

Authorised investment funds (AIFs)

For the purposes of Property rental business Conditions A and B, no account is taken of the underlying assets, regardless of the level of ownership or nature of the activities in an opaque AIF. This applies where the AIF takes the form of an open-ended investment company (OEIC), a unit trust or a co-ownership Authorised contractual fund.

Non-resident unit trusts

There is no single answer that applies to all non-resident unit trusts, and not even one for all unit trusts established in a particular location. The result depends on the nature of the deed establishing the trust as well as the laws of the jurisdiction under which the trust is set up.

Where the trust is treated as though it is transparent for income purposes, the property held via the unit trust is treated in the same way as partnership property (see above). Where the trust is treated as opaque, the property is treated in the same way as property held via a company that is not a member of a Group REIT.

Companies

If the company is not a 75% / effective 51% subsidiary, then property owned via a company is not generally taken into account for Property rental business Conditions A and B. The only exception to this is if a joint venture look-through notice has been given in respect of the company (see IFM30010 for the conditions for giving such a notice).

A company with a 75% / effective 51% subsidiary may elect to join the regime as a single company. In this case, no account is taken of the property owned by the subsidiary for the purposes of Property rental business Conditions A and B.

Where a company is a 75% / effective 51% subsidiary of a Group REIT, the property held by the subsidiary is taken into account for the purposes of Property rental business Conditions A and B.