Clause 559: Demergers: company leaving group UK REIT

1764.     This clause makes provision for a company to cease to be a member of a group UK REIT but to continue within the UK REIT regime. It is based on paragraph 34 of Schedule 17 to FA 2006.

1765.     Subsection (9) makes clear that the conditions in the clause are to be met by the company giving the notice (not necessarily the exiting company).

Clause 560: Interpretation of Chapter

1766.     This clause provides that the Chapter (apart from clause 559) is to be read as if it were contained in TCGA. It is based on section 127 of FA 2006.

Chapter 8: Breach of conditions in Chapter 2

Clause 561: Notice of breach of relevant Chapter 2 condition

1767.     This clause provides that if certain conditions in Chapter 2 are not met, the principal company of a group UK REIT or a company UK REIT must notify an officer of Revenue and Customs of the breach. It is based on sections 116(1) and (2) and 134(1) of FA 2006.

1768.     Subsections (1) and (2) refer to an “officer of Revenue and Customs” rather than to the “Commissioners for Her Majesty’s Revenue and Customs”. See Change 5 in Annex 1.

1769.     Subsection (4) enacts the information requirements in regulation 9 of SI 2006/2864. See Change 43 in Annex 1.

Clause 562: Breach of conditions C and D in section 528 (conditions for company)

1770.     This clause makes provision about breaches of conditions C and D in clause 528. It is based on sections 116(1) and (3) and 134(1) of, and paragraph 4 of Schedule 17 to, FA 2006.

1771.     This clause enacts regulations 1 to 4 of SI 2006/2864. See Change 43 in Annex 1.

1772.     Subsection (2) provides that if a principal company of a group UK REIT or a company UK REIT becomes a member of a pre-existing group UK REIT, and by doing so fails to satisfy condition C (shares are listed) and condition D (not a close company) in clause 528, the breaches are ignored.

1773.     As indicated in clause 569, this clause is subject to clause 572 which allows an officer of Revenue and Customs to issue a notice of termination of the UK REIT regime in some circumstances.

Clause 563: Breach of conditions as to property rental business

1774.     This clause provides that conditions A or B of clause 529 can be breached without causing the UK REIT regime to terminate. It is based on section 116(1) and (3) of FA 2006.

1775.     This clause enacts regulation 5(1) and (2) of SI 2006/2864. See Change 43 in Annex 1.

1776.     As indicated in clause 569, this clause is subject to clause 572, which allows an officer of Revenue and Customs to issue a notice of termination of the UK REIT regime in some circumstances.

Clause 564: Breach of condition as to distribution of profits

1777.     This clause sets out how the distribution condition in clause 530 can be breached without causing the UK REIT regime to terminate. It is based on section 116(1) and (3) of FA 2006.

1778.     This clause enacts regulation 6(1) to (3) and (5) to (8) of SI 2006/2864. See Change 43 in Annex 1.

1779.     Subsection (2) provides that the breach is ignored if the company does not meet the distribution condition in clause 530, but an amount calculated under clause 565 is charged to corporation tax. The amount is charged to corporation tax as if it were profits of residual business of the distributing company. Accordingly the rate of tax is the main rate of corporation tax.

1780.     As indicated in clause 569, this clause is subject to clause 572 which allows an officer of Revenue and Customs to issue a notice of termination of the UK REIT regime in some circumstances.

Clause 565: “The section 565 amount”

1781.     This clause sets out how to calculate “the section 565 amount” for the purposes of clause 564. It is based on section 116(1) and (3) of FA 2006.

1782.     This clause enacts regulation 6(4) of SI 2006/2864. See Change 43 in Annex 1.

1783.     This clause provides that an “officer of Revenue and Customs” rather than “the Commissioners” may specify a date before which profits are to be distributed. See Change 5 in Annex 1.

Clause 566: Breach of condition B in section 531 in accounting period 1

1784.     This clause sets out how condition B in clause 531 (balance of business: assets involved in property rental business) can be breached in the first accounting period (“accounting period 1” - see clause 609) of a UK REIT without causing the UK REIT regime to terminate. It is based on section 116(1) and (3) of FA 2006.

1785.     This clause enacts regulations 7 and 7A of SI 2006/2864. See Change 43 in Annex 1.

1786.     This clause provides that if the balance of business assets test in clause 531(5) is not met in accounting period 1, the breach is ignored, but an amount calculated in accordance with clause 567 is charged to corporation tax. The amount is charged to corporation tax as if it were profits of residual business of the principal company of the group UK REIT or company UK REIT. Accordingly the rate of tax is the main rate of corporation tax.

1787.     As indicated in clause 569, this clause is subject to clause 572 which allows an officer of Revenue and Customs to issue a notice of termination of the UK REIT regime in some circumstances.

Clause 567: Meaning of “the notional amount”

1788.     This clause sets out how to calculate “the notional amount” for the purposes of clause 566. It is based on section 116(1) and (3) of FA 2006.

1789.     This clause enacts regulation 7A(4) to (7) of SI 2006/2864. See Change 43 in Annex 1.

1790.     In regulation 7A(5) of SI 2006/2864. the aggregate market value of assets involved in the UK property rental business excludes assets attributable to any percentage of the assets held by a non-member of the group. Subsection (4)(c) of the clause makes that exclusion, as in clause 539(4). See Change 44 in Annex 1.

Clause 568: Breach of balance of business conditions after accounting period 1

1791.     This clause sets out how the balance of business conditions in clause 531 can be breached in the accounting periods following the first accounting period (“accounting period 1” - see clause 609) of the UK REIT without causing the UK REIT regime to terminate. It is based on section 116(1) and (3) of FA 2006.

1792.     This clause enacts regulation 7B(1) to (3) of SI 2006/2864. See Change 43 in Annex 1.

1793.     As indicated in clause 569, this clause is subject to clause 572 which allows an officer of Revenue and Customs to issue a notice of termination of the UK REIT regime in some circumstances.

Clause 569: Chapter subject to section 572

1794.     This clause provides that this Chapter is subject to clause 572 (termination of UK REIT regime by officer of Revenue and Customs). It is based on section 116(4) of FA 2006.

Chapter 9: Leaving the UK REIT regime

Clause 570: Overview of Chapter

1795.     This clause is an overview of the Chapter. It is new.

Clause 571: Termination by notice: group or company

1796.     This clause provides that the principal company of a group UK REIT or a company UK REIT may give notice to an officer of Revenue and Customs for the UK REIT regime to cease for the group or company. It is based on sections 128 and 134(1) of, and paragraph 23 of Schedule 17 to, FA 2006.

1797.     Subsection (3) requires the notice to be given to an “officer of Revenue and Customs” rather than to “the Commissioners of Her Majesty’s Revenue and Customs”. Subsection (4) requires that the date on the notice must be after the date the “officer” receives the notice. See Change 5 in Annex 1.

Clause 572: Termination by notice: officer of Revenue and Customs

1798.     This clause provides that, in certain circumstances, an officer of Revenue and Customs may give a notice to the principal company of a group UK REIT or a company UK REIT that the group or company ceases to be within the UK REIT regime. It also provides a right of appeal. It is based on sections 129 and 134(1) of, and paragraphs 23 and 24 of Schedule 17 to, FA 2006.

1799.     Subsections (1), (2) and (4) require the notice to be given by an “officer of Revenue and Customs” rather than by “the Commissioners for Her Majesty’s Revenue and Customs”. Subsection (5) provides that an appeal must be made by the UK REIT by giving notice in writing to an “officer of Revenue of Customs” rather than to “the Commissioners for Her Majesty’s Revenue and Customs”. See Change 5 in Annex 1.

Clause 573: Notice under section 572: tax advantage

1800.     This clause provides that if, during a ten year period, two notices have been given under clause 545 (cancellation of tax advantage), an officer of Revenue and Customs may give a notice under clause 572 terminating the UK REIT regime. It is based on sections 129(2) and 134(1) of FA 2006.

1801.     Subsection (1) requires the notice to be given by an “officer of Revenue and Customs” rather than by “the Commissioners for Her Majesty’s Revenue and Customs”. See Change 5 in Annex 1.

1802.     Subsections (2) to (4) enact regulation 14 of SI 2006/2864. See Change 43 in Annex 1.

Clause 574: Notice under section 572: serious breach

1803.     This clause provides that if an officer of Revenue and Customs thinks a breach of a condition in clauses 529 to 531 is so serious that the UK REIT regime should be terminated, the officer may give a notice under clause 572 terminating the regime. It is based on sections 116(1) and (3), 129(2) and 134(1) of FA 2006.

1804.     Subsection (1) requires the notice to be given by an “officer of Revenue and Customs” rather than by “the Commissioners for Her Majesty’s Revenue and Customs”. See Change 5 in Annex 1.

1805.     Subsections (2) and (3) enact regulation 7(4) and (5) of SI 2006/2864. See Change 43 in Annex 1.

Clause 575: Notice under section 572: breach of conditions as to property rental business

1806.     This clause sets out the circumstances in which an officer of Revenue and Customs may issue a notice under clause 572 to terminate the UK REIT regime if there is a breach of either condition A or B in clause 529. It is based on sections 116(1) and (3), 129(2) and 134(1) of FA 2006.

1807.     Subsection (1) requires the notice to be given by an “officer of Revenue and Customs” rather than by “the Commissioners for Her Majesty’s Revenue and Customs”. See Change 5 in Annex 1.

1808.     This clause enacts regulation 5(2) and (5) of SI 2006/2864. See Change 43 in Annex 1.

Clause 576: Notice under section 572: breach of conditions as to balance of business

1809.     This clause sets out the circumstances in which an officer of Revenue and Customs may issue a notice under clause 572 to terminate the UK REIT regime if there is a breach of either condition A or B in clause 531. It is based on sections 116(1) and (3), 129(2) and 134(1) of FA 2006.

1810.     Subsection (1) requires the notice to be given by an “officer of Revenue and Customs” rather than by “the Commissioners for Her Majesty’s Revenue and Customs”. See Change 5 in Annex 1.

1811.     This clause enacts regulation 7B(4) to (7) of SI 2006/2864. See Change 43 in Annex 1.

Clause 577: Notice under section 572: multiple breaches of conditions in Chapter 2

1812.     This clause provides that if there are multiple breaches of certain Chapter 2 conditions, an officer of Revenue and Customs may issue a notice under clause 572 to terminate the UK REIT regime. It is based on sections 129(2) and (3) and 134(1) of FA 2006.

1813.     Subsection (1) requires the notice to be given by an “officer of Revenue and Customs” rather than by “the Commissioners for Her Majesty’s Revenue and Customs”. See Change 5 in Annex 1.

1814.     This clause enacts regulation 8 of SI 2006/2864. See Change 43 in Annex 1.

1815.     Subsection (7)(a) provides that if a member of a group UK REIT or a company UK REIT becomes a member of a pre-existing group UK REIT, and by doing so fails to satisfy condition C (shares are listed) or condition D (not a close company) in clause 528, the breaches are ignored.

Clause 578: Automatic termination for breach of certain conditions in section 528

1816.     This clause provides that the UK REIT regime automatically terminates if condition A, B, E or F in clause 528 is breached. The company which gave notice under clause 523 or 524 must notify an officer of Revenue and Customs of the breach. The clause is based on sections 130 and 134(1) of, and paragraphs 4 and 23 of Schedule 17 to, FA 2006.

1817.     Subsection (3) requires the notice to be given to an “officer of Revenue and Customs” rather than to “the Commissioners for Her Majesty’s Revenue and Customs”. See Change 5 in Annex 1.

Clause 579: Effects of cessation: corporation tax

1818.     This clause sets out what happens if a group UK REIT, a member of a group UK REIT (including a joint venture company) or a company UK REIT ceases to be within the UK REIT regime. It is based on sections 131 and 134 of, and paragraphs 25, 26 and 33 of Schedule 17 to, FA 2006.

1819.      This clause also applies to non-UK companies (including non-UK joint venture companies). See Change 41 in Annex 1.

1820.     Subsections (3) and (8) provide that property rental business (or UK property rental business in the case of a non-UK company) of an exiting company is treated for corporation tax purposes as ceasing immediately before cessation of the UK REIT regime.

1821.     Subsections (4) and (8) provide that assets “involved” in the property rental business (or UK property rental business in the case of a non-UK company) immediately before cessation are treated as being sold immediately before cessation and reacquired immediately afterwards. See clause 608(3) for the definition of an asset “involved” in property rental business.

Clause 580: Effects of cessation: CAA 2001

1822.     This clause is supplementary to clause 579 and modifies how CAA operates if a company (including a joint venture company) ceases to be in the UK REIT regime. It is based on sections 131(4) and 134(1) of, and paragraphs 25(1) and 26(1) of Schedule 17 to, FA 2006.

Clause 581: Early exit by notice

1823.     This clause sets out what happens if a UK REIT or a member of a group UK REIT (including a joint venture company) that was within the UK REIT regime for less than ten years disposes of an asset within two years of giving notice to leave the UK REIT regime. It is based on sections 132 and 134(1) of, and paragraphs 4, 27 and 28 of Schedule 17 to, FA 2006.

1824.     This clause applies to UK property rental business of non-UK companies (including non-UK joint venture companies) and subsection (7) applies to non-UK companies. See Change 41 in Annex 1.

1825.     Subsection (4) provides that one of the conditions for subsection (6) to apply is that assets “involved” in the property rental business (or UK property rental business in the case of a non-UK company) are disposed of within two years of cessation of the UK REIT regime. See clause 608(3) for the definition of an asset “involved” in property rental business.

Clause 582: Early exit

1826.     This clause allows HMRC to make certain directions if a group UK REIT or company UK REIT ceases to be a UK REIT within ten years of entering the regime as a result of clause 572 (termination by officer) or clause 578 (automatic termination). It is based on sections 133 and 134(1) of, and paragraph 4 and 29 of Schedule 17 to, FA 2006.

1827.     Subsection (2) allows an “officer of Revenue and Customs” to make the direction rather than “the Commissioners for Her Majesty’s Revenue and Customs”. See Change 5 in Annex 1.

Chapter 10: Joint ventures

Clause 583: Overview of Chapter

1828.     This clause is an overview of the Chapter. It is new.

Clause 584: Meaning of “joint venture company” and “joint venture group”

1829.     This clause defines “joint venture company” and “joint venture group” for the purposes of the Chapter. It is based on section 138(1) of FA 2006.

1830.     This clause enacts parts of SI 2006/2866 and SI 2007/3425. See Change 43 in Annex 1.

Clause 585: Meaning of “venturing group” and “venturing company”

1831.     This clause defines “venturing company” and “venturing group” for the purposes of the Chapter. It is based on section 138(1) of FA 2006.

1832.     This clause enacts parts of SI 2006/2866 and SI 2007/3425. See Change 43 in Annex 1.

Clause 586: Notice for Part to apply: joint venture company

1833.     This clause provides that a group UK REIT or a company UK REIT may bring a joint venture company (including a non-UK joint venture company) into the regime if certain conditions are met. It is based on section 138(1) and (3) of FA 2006.

1834.     This clause enacts parts of SI 2006/2866. See Change 43 in Annex 1.

1835.     Subsection (1) provides that the principal company of a group UK REIT may give notice that the Part is to apply in relation to property rental business carried on by a joint venture company. Subsection (2) makes similar provision in relation to a company UK REIT.

1836.     Giving a notice under subsection (2) does not mean that the company UK REIT is treated as giving a group notice under clause 523(1). So it is not required to bring all its subsidiaries into the UK REIT regime.

1837.     Condition 7 of regulations 3(1) and 10(1) SI 2006/2866 provides that, in order for a notice to be made in respect of a joint venture company, the joint venture company must satisfy the balance of business tests in section 108 of FA 2006. But a joint venture notice must be made at the beginning of the accounting period and the balance of business tests cannot be satisfied until the end of the accounting period. So it is unclear when a notice can be made.

1838.     The balance of business tests are rewritten in clause 591, putting joint venture companies on the same basis as joint venture groups. Condition 7 is not rewritten.

1839.     Subsection (6)(b) requires the “consent” of the joint venture company. This requirement replaces the need for the notice to be “signed by the company secretary or a director”. So the clause is consistent with the possibilities that the notice may be given electronically and that, following the Companies Act 2006, the company may not have a company secretary or a director.

1840.     Subsection (6)(d) provides that the notice must be given to an “officer of Revenue and Customs” rather than to “the Commissioners for Her Majesty’s Revenue and Customs”. See Change 5 in Annex 1.

Clause 587: Notice for Part to apply: joint venture group

1841.     This clause provides that a group UK REIT or a company UK REIT may bring a joint venture group (including a non-UK member of a joint venture group) into the regime if certain conditions are met. It is based on section 138(1) and (3) of FA 2006.

1842.     This clause enacts parts of SI 2007/3425. See Change 43 in Annex 1.

1843.     Subsection (1) provides that the principal company of a group UK REIT may give notice that the Part is to apply in relation to property rental business carried on by the members of a joint venture group. Subsection (2) makes similar provision in relation to a company UK REIT.

1844.     Giving a notice under subsection (2) does not mean that the company UK REIT is treated as giving a group notice under clause 523(1). So it is not required to bring all its subsidiaries into the UK REIT regime.

1845.     Subsection (6)(b) requires the “consent” of the principal company of the joint venture group. This requirement replaces the need for the notice to be “signed by the company secretary or a director”. So the clause is consistent with the possibilities that the notice may be given electronically and that, following the Companies Act 2006, the company may not have a company secretary or a director.

1846.     Subsection (6)(d) provides that the notice must be given to an “officer of Revenue and Customs” rather than to “the Commissioners for Her Majesty’s Revenue and Customs”. See Change 5 in Annex 1.

Clause 588: Effect of notice under section 586

1847.     This clause makes general modifications to the Part to take into account joint venture companies. It is based on section 138(1) and (2) of, and paragraph 3(1) of Schedule 17 to, FA 2006.

1848.     This clause enacts parts of SI 2006/2866. See Change 43 in Annex 1.

1849.     Subsection (1) provides that, if the principal company of a group UK REIT gives notice in relation to a joint venture company, the Part applies in relation to property rental business carried on by the joint venture company as if it were a member of the group UK REIT.

1850.     Subsection (2) provides that, if a company UK REIT gives notice in relation to a joint venture company, the Part applies in relation to property rental business carried on by the joint venture company as if the company UK REIT and the joint venture company were members of a new group UK REIT.

Clause 589: Effect of notice under section 587

1851.     This clause makes general modifications to the Part to take into account members of a joint venture group. It is based on section 138(1) and (2) of FA 2006.

1852.     This clause enacts parts of SI 2007/3425. See Change 43 in Annex 1.

1853.     Subsection (1) provides that, if the principal company of a group UK REIT gives notice in relation to members of a joint venture group, the Part applies in relation to property rental business carried on by the members of the joint venture group as if they were members of the group UK REIT.

1854.     Subsection (2) provides that, if a company UK REIT gives notice in relation to members of a joint venture group, the Part applies in relation to property rental business carried on by the members of the joint venture group as if the company UK REIT and the members of the joint venture group were members of a new group UK REIT.