IFM25037 - Real Estate Investment Trust : Capital gains: computational rules: company ceasing to be a member of a group (TCGA1992/S179): examples

Company leaves one group and joins a Group REIT

T and Z are members of group V. Z transferred a property to T on 30 June 2015 at a no gain/no loss value of 1,500. The market value at that date was 2,000.  An existing Group REIT acquires T on 31 May 2017, when the market value of the property is 2,300.  All companies have 31 December accounting dates. 

The sale of T by V triggers a deemed disposal and acquisition of the property by T at its market value on 30 June 2015 (TCGA1992/S179(3)). The gain (before indexation) of 500 is treated as increasing the consideration received by V (TCGA1992/S179(3A).

When T joins the Group REIT, there is another deemed sale and reacquisition of the property, at market value 2,300 (CTA2010/S536(2) and (3)). The gain of 300 between the TCGA1992/S179(3) deemed sale and reacquisition and the S536(2) one, is not a chargeable gain (CTA2010/S536(4)).          

Company leaves a Group REIT

T and A are members of Group REIT G.  A transferred a property to T on 30 June 2016 at a no gain/no loss value of 1,500 (original cost plus enhancement and indexation relief).  The market value was 1,800 at the date of entry to the REIT regime and 2,000 at the date of the intra group transfer.  A company (which is not a UK-REIT) acquires T on 31 May 2017, when the market value of the property is 2,300.  All companies have 31 December accounting dates. 

The sale of T by G triggers a deemed disposal and acquisition of the property by T at its market value on 30 June 2016 (TCGA1992/S179(3)). The gain (before indexation) of 500 is treated as accruing to T on 1 January 2017 (S179(4), being later than the date of the TCGA1992/S179(3) deemed sale and reacquisition). This gain accrues to T in the accounting period that runs from 1 January to 31 May 2017 (the old one ceases and a new one begins when the UK-REIT regime ceases to apply to T). This gain accrues while T is within the REIT regime, and is therefore not a chargeable gain, under CTA2010/S535. 

When T leaves the Group REIT G, there is another deemed sale and reacquisition of the property, at market value 2,300 (CTA2010/S579(4) and (5)). The gain of 300 between the S179(3) deemed sale and reacquisition and the S579(4) one, is also not a chargeable gain under CTA2010/S535. 

The base cost of the property to T for future disposals is as follows:-

2,300 if the property is retained for more than 2 years after T leaves the REIT regime and there are no  deferred gains waiting to resurface or

 2,000 if the company leaves the REIT group within 10 years and sells the property within 2 years - see IFM25055 and IFM26035 onwards for the consequences of leaving the REIT regime within 10 years