BECOMING A UK-REIT 07
A UK-REIT does not have to be solely a property rental group. There are no restrictions other than scale as to the type of other businesses that the UK-REIT can pursue. The scale limitations are that the UK-REIT’s non-property rental business (its ‘residual business’) must represent no more than 25% of its total profits for each period and no more than 25% of its total assets by value. However, non-rental profits from activities undertaken to comply with obligations under the Town and Country Planning Act 1990 will not be taken into account. “exempt from tax on rental profits and capital gains deriving from its UK property rental business” A UK-REIT is generally exempt fromUK corporation tax on income and gains of its UK property rental business. The REIT’s UK property rental business comprises all property rental business undertaken by UK companies in the group (i.e. whether the properties are in the UK or overseas) and any rental business of non‑UK companies to the extent that it relates to UK properties.
Gains on disposals of investment properties will generally be exempt from tax. There is, however, an exception to this, the so-called ‘three- year development rule’. This applies where a property has been developed since acquisition; the cost of the development exceeds 30% of the fair value (as determined by International Accounting Standards) of the property at the later of the date the company acquired the property and the date the company joined the UK-REIT regime; and the company disposes of it within three years of completion of the development to a non‑group company. Where the three-year development rule applies, the gain on the property will generally be subject to UK corporation tax. Any profits derived from the UK-REIT’s ‘residual businesses’ are subject to corporation tax. Such profits would include, for example, interest income, property management income and any profits on sales of development property held for sale.
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