IFM25033 - Real Estate Investment Trust : Capital gains: computational rules: Company ceasing to be a member of a group (disposal of shares): CTA2010/S559 and S579

Where a Group disposes of property by disposing of the shares in a subsidiary there is a deemed disposal and reacquisition of the property at market value by the property rental business (CTA2010/S579(4) & (5)) and, usually, for disposals before 6 April 2019, a disposal of the subsidiary shares by the residual business. A gain/loss on disposal of shares in a UK property rich company on or after 6 April 2019 is treated as within the property rental business with exemption provided by CTA2010/S535A (see IFM25007)

The gain or loss arising on the deemed disposal by the property rental business is exempt by CTA2010/S535. The 3 year development rule (CTA2010/S556(3)) does not apply in respect of a deemed disposal by the property rental business.

Tax treatment of the disposal of shares

The gain or loss on the disposal of shares is, for disposals before 6 April 2019, usually a chargeable gain within the residual business. Disposals on or after 6 April 2019 of shares in a UK property rich company are usually not chargeable gains (CTA2010/S535A). However, in certain circumstances a gain may be treated as trading (and therefore residual) income under CTA2010/S356OD.

This will be the case where:

  • A person realises a profit or gain from a disposal of any property which (at the time of the disposal) derives at least 50% of its value from land in the United Kingdom, and
  • The person is a party to, or concerned in, an arrangement concerning some or all of the project land, and
  • The main purpose or one of the main purposes of the arrangement, is to deal in or develop the project land and realise a profit or gain from a disposal of property deriving the whole or part of its value from that land.

This legislation applies to enveloped disposals as well as direct disposals of property. Further information and examples can be found at BIM60580.

This will also be the case where the 3 year development rule at CTA2010/S556(3A) applies (see IFM24050)

Disposal by UK group REIT to another UK group REIT

Where the Group disposes of the shares in its subsidiary to another UK REIT group, there is no deemed disposal in the property rental business (CTA2010/S579(9)).

Where the Group disposes of the shares in its subsidiary to a group/company which immediately gives notice electing into the REIT regime on a specified date no later than the date of acquisition then there is no deemed disposal of property assets for the group. The new company/group REIT must on giving notice meet conditions A and B in S528, have property rental business meeting the conditions in S529 and, the principal company of the group REIT or the company REIT, must meet the condition in S530 and conditions A and B in S531. Conditions C, E and F in S528 must be met within a 6 month period starting with the date of the notice. (CTA2010/S559)