1679.This section provides that, for corporation tax purposes, when a company (including a joint venture company) enters the UK REIT regime its property rental business ceases and recommences and it is deemed to sell and reacquire the assets involved in that business. This section is based on sections 111 and 134 of, and paragraphs 9, 10 and 33 of Schedule 17 to, FA 2006.
1680.Subsection (1) provides that property rental business (or UK property rental business of non-UK companies) carried on before entry to the UK REIT regime is treated as ceasing at entry for the purposes of corporation tax. As section 520(3) provides that profits of UK property rental business of non-UK companies are treated as liable to corporation tax, this section applies to all companies whether or not UK resident. See Change 41 in Annex 1.
1681.Subsections (2) to (4)provide that, for the purposes of corporation tax, assets involved in property rental business (or UK property rental business of non-UK companies) immediately before entry to the UK REIT regime are treated as being sold and reacquired at market value on entry. Any resulting gain is not chargeable to corporation tax. The only non-UK companies affected by this rule are those that are resident both in the United Kingdom and in another territory. See Change 41 in Annex 1.
1682.The final words of subsection (2)(b) ensure that the reacquired assets are held by the company within the UK REIT regime.
1683.Subsection (5) provides that, for corporation tax purposes, an accounting period ends and begins again on entry to the regime. The subsection also applies to non-UK companies. See Change 41 in Annex 1.
1684.Subsection (6)(a) provides that if a percentage of the assets of a member of a group UK REIT is excluded from the financial statements because that percentage is attributable to a non-member, the percentage is ignored for the purposes of subsection (2).
1685.This section is supplementary to section 536 and modifies how CAA operates when a company (including a joint venture company) enters the UK REIT regime. It is based on sections 111(4) and 134(1) of, and paragraph 9 of Schedule 17 to, FA 2006.
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.
1691.This section sets out how to calculate the amount of notional income for the purposes of section 538. It is based on sections 112(3) and 134(1) of, and paragraphs 9(4), 10(2) and 11(1) of Schedule 17 to, FA 2006.
1692.Subsection (3) defines “MV” as the total market value of assets which are involved in property rental business of the company (or UK property rental business in the case of non-UK companies) immediately before entry to the UK REIT regime.
1693.Subsection (4) provides that if a percentage of the assets is excluded from the financial statements because it is attributable to a non-member, that percentage is ignored for the purposes of “MV”.
1694.Subsection (5)(a) defines “TR” for UK companies as the rate mentioned in section 534(3) (the main rate of corporation tax).
1695.Subsection (5)(b) defines “TR” for non-UK companies (including non-UK joint venture companies) as the basic rate of income tax.
1696.This section provides that a company (including a joint venture company) may elect to pay the entry charge in instalments. It is based on sections 112(5) to (7) and 134(1) of, and paragraph 11(1) of Schedule 17 to, FA 2006.
1697.Subsection (3)refers 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.