What happens to a company's property rental business when it enters the UK REIT regime under section 536?

Under section 536 of the Corporation Tax Act 2010, the company's existing property rental business is treated as ceasing for corporation tax purposes on the date of entry. The current accounting period ends and a new one begins immediately, creating a clear separation between pre-entry and post-entry profits for corporation tax calculation.

How are assets treated when a company joins a UK REIT under section 536?

Assets involved in the property rental business are deemed sold immediately before entry and reacquired immediately after entry, both at market value. This rebases the assets to their market value at the point of entry. Crucially, any gain arising from this deemed disposal is not treated as a chargeable gain, so no corporation tax is payable on entry.

Are there situations where the section 536 entry rules do not apply?

Yes. The deemed cessation and asset reacquisition rules do not apply when a company transfers from one group UK REIT to another, as it is already within the REIT regime. They also do not apply when a standalone company UK REIT converts into a member of a group UK REIT. These provisions are additionally subject to the demerger rules in section 559.

How does section 536 apply to non-UK members of a group UK REIT?

For non-UK members of a group UK REIT, the deemed sale and reacquisition rules apply only to their UK property rental business, not to any overseas property rental activities. Additionally, any percentage of a group member's assets excluded from the group's financial statements because it is attributable to non-group interests is disregarded when applying the deemed disposal rules.

Corporation Tax Act 2010 section 536

Effects of entry: corporation tax

Section 536 deals with the corporation tax consequences when a company enters the UK REIT regime, including the deemed cessation and recommencement of its property rental business and the deemed sale and reacquisition of assets at market value.

When a company joins a UK REIT, its existing property rental business is treated as ceasing for corporation tax purposes, and a new accounting period begins on the date of entry.
Assets used in the property rental business are treated as sold immediately before entry and reacquired immediately after entry at market value, but any gain arising from this deemed disposal is not a chargeable gain.
For group UK REITs, any percentage of a member's assets excluded from financial statements because it is attributable to a non-member is ignored for the deemed sale and reacquisition rules, and non-UK group members are only affected in respect of their UK property rental business.
These entry provisions do not apply where a company simply transfers from one group UK REIT to another, or where a standalone company UK REIT joins a group UK REIT.

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