IFM24510 - Real Estate Investment Trust : Residual income: disposal of assets used in the property rental business: CTA2010/556

General rule

The general rule for UK-REITs is that the gain arising on disposal of an asset that was involved in the property rental business is not a chargeable gain and as such is not charged to tax.

Gains on disposals of assets not involved in the property rental business are chargeable to CT in the normal way. Disposal of shares in a subsidiary member of the Group REIT will give rise to a CT charge, even though the subsidiary might have been carrying on a property rental business. 

Exceptions

There are two exceptions to the rule that disposals of assets of the property rental business are tax-free. One is the disposal of properties used in the property rental business within 3 years of completion of a development (CTA 2010/S556(3)) – see IFM24520. The other is where a property used in the property rental business is disposed of by way of trade – see IFM24515. In both cases, the transaction is treated as though the assets had never been used in the property rental business and the profit, gain or loss is treated as arising in the residual business and is subject to tax (CTA 2010/S556(1) and (2)).

The rental income and associated expenses that have been included in the property rental business profits are left undisturbed – see IFM24050 for more detail. If the asset was owned by the company/member of the group at the date it joined the regime, the deemed sale and reacquisition at entry are ignored and, if entry to the REIT regime was before 17th July 2012, the company can claim repayment of the amount of Entry Charge relating to the property (see IFM24055).

These rules apply to disposals of assets of UK companies and disposals of assets involved in the UK property rental business of non-UK companies.