IFM27030 - Real Estate Investment Trust : Breaches of conditions: number and value of properties: CTA2010/S563 and S575
To join and remain in the regime, a UK-REIT is required to own at least three qualifying properties and for no one of those properties to represent more than 40% by value of the assets of the property rental business. (Conditions A and B of CTA2010/S529 – see To join and remain in the regime, a UK-REIT is required to own at least three qualifying properties and for no one of those properties to represent more than 40% by value of the assets of the property rental business. (Conditions A and B of CTA2010/S529 – see onwards for detail). These conditions have to be met throughout each accounting period.
A breach of the property rental business conditions A or B may be ignored (CTA2010/S563). However a notice of removal from the regime under CTA2010/S572 may be issued by HMRC where there is a breach of the property rental business conditions A or B in 3 consecutive accounting periods or where the UK-REIT has relied upon CTA2010/S563 in respect of one of the conditions more than twice in a 10 year period (CTA2010/S575).
Although the relevant regulation covers both of the property conditions, it is easier to deal with breaching either of them separately, and then both together when considering the consequences of the rule. The examples at [To join and remain in the regime, a UK-REIT is required to own at least three qualifying properties and for no one of those properties to represent more than 40% by value of the assets of the property rental business. (Conditions A and B of CTA2010/S529 – see To join and remain in the regime, a UK-REIT is required to own at least three qualifying properties and for no one of those properties to represent more than 40% by value of the assets of the property rental business. (Conditions A and B of CTA2010/S529 – see onwards for detail). These conditions have to be met throughout each accounting period.
A breach of the property rental business conditions A or B may be ignored (CTA2010/S563). However a notice of removal from the regime under CTA2010/S572 may be issued by HMRC where there is a breach of the property rental business conditions A or B in 3 consecutive accounting periods or where the UK-REIT has relied upon CTA2010/S563 in respect of one of the conditions more than twice in a 10 year period (CTA2010/S575).
Although the relevant regulation covers both of the property conditions, it is easier to deal with breaching either of them separately, and then both together when considering the consequences of the rule. The examples at](https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm27035) show how the rules interact.
Repeat and multiple breaches – termination
If either of the property conditions (taken individually) is breached more than twice in ten years, HMRC may issue a notice to terminate and the regime ceases to apply with effect from the last day of the accounting period before the property condition was breached for the third time.
A breach of either of the property conditions A and B is also included in the count of breaches for the purposes of CTA2010/S577 which deals with multiple breaches of chapter 2 conditions (see IFM27065).
For the purposes of deciding whether there have been multiple breaches of these conditions in particular, or of the regime conditions in general, a failure of either property condition that lasts for two accounting periods (but no longer) counts as a single breach. Also if property condition B is breached as a consequence of breaching property condition A, this breach does not count as a separate breach.
Breaches occurring in three successive accounting periods
If a breach of either of the property conditions occurs in three or more successive accounting periods HMRC may issue a notice to terminate - CTA 2010/S575(1). The notice under CTA 2010/S572(1) provides that the UK-REIT regime ceases to apply with effect from the end of the second accounting period (being the end of the accounting period before the accounting period of the last event that triggered the notice (CTA2010/S572(4)).
Serious breach
If an officer of HMRC thinks that a breach of the property conditions is so serious, they may give notice to the company to remove the company or the group from the UK-REIT regime CTA2010/S574(1). This is regardless of whether the limits for breaching any of the individual conditions, or the multiple breach limits have been reached. The consequences of the issue of a termination notice by HMRC are dealt with at IFM26025.