BECOMING A UK-REIT 31
APPENDICES
APPENDIX A: DETAILS OF FURTHER KEY REQUIREMENTS AND RULES
There is no entry charge payable on admittance to the UK-REIT regime. Property assets entering the regime are rebased to market value. Shares in UK property companies are not rebased. The general admitted to trading requirement has flexibility to allow companies to be admitted to trading on AIM and its equivalents. Shares in a UK-REIT are also generally required to either be listed on a recognised stock exchange throughout each accounting period (which does not include AIM) or subject to trading in each accounting period. This condition does not have to be met by new entrants to the regime in the first three accounting periods in which they are within the regime. The close company condition is relaxed to: X Give new entrants to the UK-REIT regime a grace period of three years in which to meet the close company condition; and X Provide that a UK-REIT that is a close company (for UK-REIT purposes) only by virtue of having one or more qualifying institutional investors as shareholders will not breach the test. The balance of business asset condition allows cash held by the UK-REIT for the purposes of the property rental business (whether deriving from equity raises, proceeds from sales of properties or surplus bank debt) to be treated as a ‘good’ asset. The definition of ‘financing costs’ for the purposes of the profit: financing cost test is restricted to interest (or the commercial equivalent). A property income distribution received by a UK-REIT from another UK-REIT in which it invests is treated as income for the investing UK-REIT’s tax exempt property rental business. Similarly the investment is included as an asset of the investing UK-REIT’s property rental business. The investing UK-REIT must distribute 100% of the property income distributions received. Legislation enacted in 2017 introduced a potential exemption from tax on the disposal of shares in subsidiaries where certain institutional investor conditions are met. From 6 April 2019, a disposal of a UK property rich company by a UK-REIT will generally not give rise to a chargeable disposal. These changes may make a disposal of a property owning subsidiary a more beneficial alternative from an overall tax perspective compared to a sale of the property held by the subsidiary. The introduction of interest restrictions from April 2017 mean that UK-REITs need to carefully model their likely interest relief. In some circumstances it may be beneficial to make appropriate elections.
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