Corporation Tax Bill

House of Commons

Session 2009 - 10
Internet Publications
Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 12 — Real Estate Investment Trusts
Chapter 8 — Breach of conditions in Chapter 2
290

(b)
in the case of a company UK REIT, the amount of notional income
treated as arising to the company under section 538.
(8)
But the entry charge notional income is reduced in accordance with the
calculation in subsection (9) if—
(a)
in the case of a group UK REIT, an asset held at the beginning of
5
accounting period 1 by a company which is a member of the group, and
(b)
in the case of a company UK REIT, an asset held by the company at the
beginning of accounting period 1,

is disposed of by the company during that period.
(9)
The calculation referred to in subsection (8) is—

10

where—
AMV is the market value of the asset at entry,
MV has the same meaning as in section 539(3), and
NI is the amount of notional income treated as arising to the company
under section 538.
15
568
Breach of balance of business conditions after accounting period 1
(1)
If—
(a)
condition A in section 531 (balance of business: profits) is not met in
relation to an accounting period other than accounting period 1, but
(b)
the profits of property rental business of the UK REIT in question are at
20
least 50% of its aggregate profits for the period,

the breach is to be ignored.
(2)
If—
(a)
condition B in section 531 (balance of business: assets) is not met in
relation to an accounting period other than accounting period 1, but
25
(b)
the value of the assets involved in property rental business of the UK
REIT in question is at least 50% of the total value of assets held by the
UK REIT,

the breach is to be ignored.
(3)
Subsections (1) and (2) are to be read in accordance with section 531.
30
569
Chapter subject to section 572
This Chapter is subject to section 572 (under which an officer of Revenue and
Customs may terminate the UK REIT status of a group or company in certain
circumstances).

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Part 12 — Real Estate Investment Trusts
Chapter 9 — Leaving the UK REIT regime
291

Chapter 9
Leaving the UK REIT regime
Introduction
570
Overview of Chapter
(1)
This Chapter makes provision about how, and in what circumstances, a group
5
or a company ceases to be a UK REIT.
(2)
The UK REIT status of a group or company may be terminated—
(a)
by a notice given by the principal company of the group or (as the case
may be) by the company (see section 571), or
(b)
in the cases set out in sections 573 to 577, by a notice given by an officer
10
of Revenue of Customs (see section 572).
(3)
In some circumstances a group or company ceases to be a UK REIT
automatically (see section 578).
(4)
This Chapter also contains provision about the effects of ceasing to be a UK
REIT (see sections 579 to 582).
15
Notice to leave regime
571
Termination by notice: group or company
(1)
Subsection (2) applies if—
(a)
the principal company of a group UK REIT, or
(b)
a company UK REIT,
20

gives a notice specifying a date at the end of which the group or company is to
cease to be a UK REIT.
(2)
The group or company ceases to be a UK REIT at the end of that date.
(3)
A notice under subsection (1) must be given in writing to an officer of Revenue
and Customs.
25
(4)
The date specified in a notice under subsection (1) must be after the date on
which the officer receives the notice.
572
Termination by notice: officer of Revenue and Customs
(1)
If an officer of Revenue and Customs gives a notice in writing—
(a)
to the principal company of a group UK REIT, or
30
(b)
to a company UK REIT,

the group or company ceases to be a UK REIT.
(2)
An officer of Revenue and Customs may give a notice under subsection (1)
only in a case within section 573, 574, 575, 576 or 577.
(3)
A notice under subsection (1) must state the reason for it.
35
(4)
If a notice is given under subsection (1)—

Corporation Tax Bill
Part 12 — Real Estate Investment Trusts
Chapter 9 — Leaving the UK REIT regime
292

(a)
the group or company (as the case may be) is to be taken to have ceased
to be a UK REIT at the end of the accounting period before the
accounting period during which the event occurs (or the last event
occurs) which caused the officer to give the notice, and
(b)
the company to which the notice is given may appeal.
5
(5)
An appeal under subsection (4)(b) must be made by notice given in writing to
an officer of Revenue and Customs during the period of 30 days beginning
with the date on which the notice under subsection (1) is given.
(6)
Section 574(3) modifies subsection (4)(a) for the case described in section 574(2)
(breach of condition B in section 531 in accounting period 1).
10
573
Notice under section 572: tax advantage
(1)
An officer of Revenue and Customs may give a notice under section 572(1) if
the condition in this section is met.
(2)
The condition is met in the case of a group UK REIT if, during the relevant 10-
year period, two notices have been given under section 545 (cancellation of tax
15
advantage) to members of the group.
(3)
The condition is met in the case of a company UK REIT if, during the relevant
10-year period, two notices have been given under section 545 to the company.
(4)
“The relevant 10-year period” is the period of 10 years beginning with the day
on which the first notice was given under section 545.
20
574
Notice under section 572: serious breach
(1)
An officer of Revenue and Customs may give a notice under section 572(1) if
the officer thinks that—
(a)
a breach of a condition in section 529, 530 or 531, or
(b)
an attempt by a member of the group or (as the case may be) by the
25
company to obtain a tax advantage,

is so serious that the group or company should cease to be a UK REIT.
(2)
Subsection (3) applies if—
(a)
the case is one relating to a breach of condition B in section 531 (balance
of business: assets) in relation to accounting period 1, and
30
(b)
that condition is not met at the beginning of the next accounting period.
(3)
In that case, section 572(4) has effect as if for paragraph (a) there were
substituted—
“(a)
the group or company (as the case may be) is to be taken to have
ceased to be a UK REIT on the first day of accounting period 1,
35
and”
575
Notice under section 572: breach of conditions as to property rental business
(1)
An officer of Revenue and Customs may give a notice under section 572(1) if,
in 3 consecutive accounting periods, there is a breach of condition A or B in
section 529 (property rental business).
40
(2)
An officer of Revenue and Customs may also give a notice under section 572(1)
if, during the relevant 10-year period, section 563(2) has been relied on—

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Part 12 — Real Estate Investment Trusts
Chapter 9 — Leaving the UK REIT regime
293

(a)
more than twice in relation to condition A in section 529, or
(b)
more than twice in relation to condition B in that section.
(3)
“The relevant 10-year period” is the period of 10 years beginning with the first
day on which section 563(2) was relied on.
(4)
The following rules apply for the purposes of subsection (2)—
5
Rule 1

If a breach of condition B in section 529 is a necessary consequence of a breach
of condition A in that section in the same accounting period, the breach of
condition B is to be ignored (and accordingly the UK REIT is not to be treated
as having relied on section 563(2) in relation to the breach of condition B).
10
Rule 2

If a breach of condition A or B in section 529 lasts for—
(a)
more than one accounting period, but
(b)
not more than two accounting periods,

the UK REIT is to be treated as having relied on section 563(2) only once.
15
576
Notice under section 572: breach of conditions as to balance of business
(1)
An officer of Revenue and Customs may give a notice under section 572(1) if
there is a breach of condition A or B in section 531 (balance of business) in 3
consecutive accounting periods.
(2)
An officer of Revenue and Customs may also give a notice under section 572(1)
20
if, during the relevant 10-year period, either subsection (1) or (2) of section 568
has been relied on more than twice.
(3)
“The relevant 10-year period” is the period of 10 years beginning with the first
day on which subsection (1) or (as the case may be) subsection (2) of section 568
was relied on.
25
(4)
In the case of a breach of condition A in section 531, section 568(1) is to be
treated for the purposes of subsection (3) as having first been relied on on the
last day of the accounting period in which profits are assessed for the purposes
of that condition.
(5)
If a breach of condition A or B in section 531 lasts for—
30
(a)
more than one accounting period, but
(b)
not more than two accounting periods,

the UK REIT is to be treated for the purposes of subsection (2) as having relied
on section 568(1) or (2) (as the case may be) only once.
(6)
References in this section to an accounting period do not include a reference to
35
accounting period 1.
577
Notice under section 572: multiple breaches of conditions in Chapter 2
(1)
An officer of Revenue and Customs may give a notice under section 572(1) if
conditions A, B and C are met.
(2)
Condition A is that at least two of the conditions in sections 528 to 531 have
40
been breached during the relevant 10-year period.

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Chapter 9 — Leaving the UK REIT regime
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(3)
Condition B is that the breached conditions are not both (or all) contained in
the same section; and for this purpose the condition in section 530 (distribution
of profits) is to be treated as contained in section 529.
(4)
Condition C is that the UK REIT has relied on some or all of the provisions
mentioned in subsection (5)(a) more than 4 times (in total) during the relevant
5
10-year period.
(5)
For the purposes of this section—
(a)
the provisions referred to in subsection (4) are—
section 562(2) and (3),
section 563(2), and
10
section 568(1) and (2), and
(b)
“the relevant 10-year period” is the period of 10 years beginning with
the day on which the first of the conditions to be breached was first
breached.
(6)
If the first of the conditions to be breached is condition A in section 531 (balance
15
of business: profits), that condition is to be treated for the purposes of
subsection (5)(b) as breached from the last day of the accounting period in
which profits are assessed for the purposes of the condition.
(7)
For the purposes of this section the following breaches are to be ignored—
(a)
a breach of condition C or D in section 528 (conditions for company)
20
occurring as a result of—
(i)
a member of a group UK REIT becoming a member of another
group UK REIT, or
(ii)
a company UK REIT becoming a member of a group UK REIT,
(b)
a breach of condition C or D in section 528 in respect of which section
25
525(2) to (4) or (5) to (7) applies,
(c)
a breach of any of conditions C to F in section 528 in respect of which
section 558(3) or 559(6) applies,
(d)
a breach of condition A in section 531 in accounting period 1, and
(e)
a breach of condition B in section 531 at the beginning of that period.
30
Automatic termination
578
Automatic termination for breach of certain conditions in section 528
(1)
Subsection (2) applies if condition A, B, E or F in section 528 (conditions for
company) is not met in relation to an accounting period.
(2)
The group or (as the case may be) the company is to be taken to have ceased to
35
be a UK REIT at the end of the previous accounting period.
(3)
The company which gave a notice under section 523 or 524 must notify an
officer of Revenue and Customs as soon as is reasonably practicable if
condition A, B, E or F in section 528 ceases to be met in relation to the company.
Effects of cessation
40
579
Effects of cessation: corporation tax
(1)
Subsections (3) to (7) apply if—

Corporation Tax Bill
Part 12 — Real Estate Investment Trusts
Chapter 9 — Leaving the UK REIT regime
295

(a)
a group or company ceases to be a UK REIT, or
(b)
a company ceases to be a member of a group UK REIT.
(2)
For the purposes of those subsections references to an “exiting company” are
to each member of the group UK REIT or (as the case may be) to the company
UK REIT.
5
(3)
Property rental business of an exiting company is to be treated for corporation
tax purposes as ceasing immediately before cessation.
(4)
Assets which immediately before cessation are involved in property rental
business of an exiting company are to be treated for corporation tax purposes
as being—
10
(a)
sold immediately before cessation by the company so far as it carries on
property rental business, and
(b)
reacquired immediately after cessation by the post-cessation company.
(5)
The sale and reacquisition deemed under subsection (4) is to be treated as being
for a consideration equal to the market value of the assets.
15
(6)
If a percentage of the assets of an exiting company is excluded from a financial
statement in accordance with section 533(3), that percentage of those assets is
to be ignored for the purposes of subsection (4).
(7)
For corporation tax purposes—
(a)
an accounting period of the company so far as it carries on residual
20
business ends on cessation, and
(b)
a new accounting period of the company begins.
(8)
In relation to a non-UK member of a group UK REIT, subsections (3) to (7) have
effect as if references to property rental business were references to UK
property rental business.
25
(9)
Subsections (3) to (7) do not apply if—
(a)
a member of a group UK REIT becomes a member of another group UK
REIT, or
(b)
a company UK REIT becomes a member of a group UK REIT.
(10)
This section is subject to section 559 (demergers: company leaving group UK
30
REIT).
580
Effects of cessation: CAA 2001
(1)
Subsections (3) to (5) apply for the purposes of CAA 2001 if a group or a
company ceases to be a UK REIT.
(2)
Subsections (3) to (5) also apply for those purposes if a company ceases to be a
35
member of a group UK REIT.
(3)
The sale and reacquisition deemed under section 579(4)—
(a)
does not give rise to allowances or charges, and
(b)
does not enable an election to be made under section 198 or 199 of CAA
2001 (apportionment).
40
(4)
Section 579(5) (deemed consideration for sale and reacquisition) does not
apply.

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(5)
Anything done before cessation by or to a company so far as it carries on
property rental business in relation to an asset which is deemed under section
579(4) to be sold and reacquired is to be treated after cessation as having been
done by or to the post-cessation company.
(6)
This section is subject to section 559 (demergers: company leaving group UK
5
REIT).
Early exit
581
Early exit by notice
(1)
Subsection (6) applies if conditions A, B and C are met.
(2)
Condition A is that a group or company ceases to be a UK REIT as a result of a
10
notice under section 571.
(3)
Condition B is that the group or company had been a UK REIT for a continuous
period immediately before cessation of less than 10 years.
(4)
Condition C is that, during the post-cessation period, a relevant company, that
is to say—
15
(a)
in the case of a group, a member of the group, or
(b)
otherwise, the company,

disposes of an asset that was involved in property rental business of the
relevant company.
(5)
“The post-cessation period” means the period of two years beginning with the
20
date of cessation.
(6)
The relevant company’s liability to corporation tax is to be determined without
regard to—
(a)
any deemed disposal under section 536(2) that resulted in a gain,
(b)
any deemed disposal under section 555(2), or
25
(c)
any deemed disposal under section 579(4).
(7)
Subsection (6) also applies if—
(a)
a company ceases to be a member of a group UK REIT,
(b)
either—
(i)
the group has been a group UK REIT for a continuous period of
30
less than 10 years, or
(ii)
the company has been a member of the group for a continuous
period of less than 10 years, and
(c)
during the post-cessation period the company disposes of an asset that
was involved in its property rental business.
35
(8)
This section has effect in relation to a non-UK member of a group as if
references to property rental business were references to UK property rental
business.
582
Early exit
(1)
This section applies if—
40
(a)
a group or a company ceases to be a UK REIT as a result of section 572
or 578, and