IFM27071 - Real Estate Investment Trust : Breaches of conditions: serious breaches: CTA2010/ S574

Where the breach of a condition in CTA2010/S529, S530 or S531 is considered serious, HMRC may give notice that the regime no longer applies (CTA2010/S574), regardless of whether the limits for breaching either of the individual conditions, or the multiple breach limits have been reached. 

The extent of the breach will be a key factor in deciding whether the breach of the condition is serious. The consequences of multiple breaches of the regime conditions is dealt with by CTA2010/S577 (see IFM27065).

Factors that may be taken into account in deciding the seriousness of the breach include:

  • The manner in which the REIT has operated historically.
  • The nature of the current breach, in terms of size and how it impacts on the overall intention of the legislation.
  • Whether the breach was intentional or outside the REIT’s control
  • Whether the REIT has a reasonable excuse for the breach.
  • Whether the REIT is able to rectify the breach and if so then how quickly.

In determining whether a breach is serious HMRC will take into account all the circumstances giving rise to the breach including any adverse effects of the current economic climate.

Where HMRC determines that a breach is serious then it may issue a notice removing the company from the regime. In applying this discretion HMRC will consider all relevant matters, taking into account the overall purpose of the legislative scheme, to decide whether a notice to remove is appropriate.

The notice specifies the date from which the regime ceases to apply, which in general is from the end of the accounting period before the one in which the breach occurred. For example company C fails to make its distribution for the accounting period ended 31 December 2016 by its CTSA filing date 31 December 2017. HMRC considers the breach is serious and issues a notice removing C from the REIT regime on 31 December 2015.

For more detail on termination notices under CTA2010/S572 see IFM26025).