Section 538: Entry charge
1686.This section provides for an amount of notional income (calculated in accordance with section 539) to be chargeable to tax on a company on entry to the UK REIT regime. It is based on sections 112(1), (2) and (4) and 134(1) of, and paragraphs 11 and 33 of Schedule 17 to, FA 2006.
1687.Subsection (2) provides that the notional amount is treated as arising in the company’s residual business. This ensures that the amount is not treated as arising in the company’s property rental business and so not chargeable to tax.
1688.It is not clear from section 112(2) of FA 2006 what rate of tax applies to UK joint venture companies. And SI 2006/2866 does not specify the rate of tax applicable for the purposes of section 112 of FA 2006. Subsection (3) of this section and section 539(5)(a) make it clear that UK joint venture companies are treated in the same way as other UK companies and consequently the rate of tax used is the rate used in section 534(3).
1689.From a practical point of view, this has no effect as the entry charge remains 2% of the market value of assets involved in UK property rental business.
1690.Subsection (4) provides that non-UK companies (including non-UK joint venture companies), are chargeable to income tax on the notional amount at the basic rate under section 11 of ITA.
