IFM29225 - Real Estate Investment Trust : Miscellaneous: availability of group relief: example

A Group UK-REIT consists of principal company P and wholly owned subsidiary S.  Both companies carry on property rental business.  S owns the office block used as group headquarters and P pays S rent for its use.  The building is therefore ‘owner-occupied’ by the group and is not part of the property rental business of S (CTA2010/S604).  The group decides to relocate its head office to a property owned by an unrelated company and to rent out its former HQ. 

If ownership is transferred to P, the former HQ moves from the residual business to the property rental business.  The group cannot use TCGA1992/S171 to transfer the property at no gain/ no loss and must calculate the chargeable gains arising to S on the basis of a disposal at market value. 

If S retains ownership of the former HQ, the same consequences follow in accordance with CTA2010/S557.  This is because the property still passes from the residual business to the property rental business, even though legal ownership is not changed. 

If however the group transfers ownership to P and sets up and operates a hotel in its former HQ, TCGA1992/S171 can apply because the transfer is between members of the residual group.   The property remains in the residual business because although no longer occupied as group HQ, the building would still be regarded as ‘owner-occupied’.