IFM29010 - Real Estate Investment Trust : Miscellaneous: indirect ownership of property

As well as owning property directly, a UK-REIT company or member of a UK-REIT group may have interests in vehicles that own property, such as companies, unit trusts, partnerships and joint ventures. Depending on the nature of the vehicle and the regime rule in question, the entity through which the property is owned may be treated as transparent/look-through or opaque. Below is a brief summary of the alternative treatments: information about how different types of entity are dealt with is at IFM29020 onwards.

There are a number of broad principles applied in deciding how indirectly held property is treated for the various purposes of the UK-REIT regime:

• for Group REITs, ‘look-through’ treatment applies for REIT group members and joint venture companies and groups where there is a Joint Venture Look-Through notice in place (see below)
• for Group REITs, the Regulations at Statutory Instrument 2865/2006 generally adopt accountancy rules for the purposes of the balance of business conditions where property is held via entities other than REIT group members (see IFM29015), and
• the legal nature of the vehicle determines the outcome where the conditions etc. have a direct tax consequence (such as the measure of property rental income for the distribution requirement) (see IFM29020 onwards).

Group UK-REIT: look-through treatment for members of the REIT group

For a Group UK-REIT, the company wrapper is looked through for members of the REIT group. To the extent group members own a subsidiary, its qualifying property counts for the distribution and balance of business conditions. The financial statements under CTA2010/S532(2) do not include income, profits and assets to the extent a group member is beneficially held outside the REIT group (CTA2010/S533(3)). Income from and gains on disposal of the property are tax exempt. Qualifying property is property that is not excluded by CTA 2010/S604 and S605.

This treatment also applies to joint venture companies/groups of a group UK-REIT in respect of which there is a Joint Venture Look-Through notice in place. (see IFM30015)

Single company UK-REITs: no ‘look-through’ treatment for subsidiaries

A company which is the parent of a group may join the regime as a single company. In this case, there is generally no look-through to the underlying income, assets etc of a subsidiary, even if it is a 75% / effective 51% subsidiary. Any property held by a subsidiary is ignored for the property rental business and balance of business conditions. Income from and gains on disposal of the property are taxable.

The exception is where a subsidiary is a joint venture company or member of a joint venture group for which there is a Joint Venture Look-Through notice in place, when the look-through treatment described above applies.