Corporation Tax Act 2010 section 556

Disposal of assets

Section 556 deals with how asset disposals by UK REITs are taxed when assets previously used in the property rental business are sold as part of the company's residual (non-rental) business, including specific anti-avoidance rules targeting property development and disposal.

• When a UK REIT disposes of an asset previously used wholly and exclusively in its property rental business as part of a trade in its residual business, the deemed sale and reacquisition that occurred on entry to the REIT regime is ignored and the disposal is taxed as part of the residual business.
• A disposal is automatically caught where a property has been developed at a cost exceeding 30% of its fair value (measured at the highest of: entry, acquisition, or the start of the accounting period in which development commenced) and is sold within three years of completing the development, provided the sale is not to another member of the same UK REIT.
• Similar rules apply where a UK REIT member disposes of rights or interests in a UK property rich company whose properties have been developed — in that case, the tax-exempt treatment under section 535A does not apply to the portion of any gain attributable to the developed property.
• Where a percentage of property rental business gains is excluded from the REIT's financial statements because the gains are attributable to a non-member, that same percentage is treated as gains of the member's residual business and taxed accordingly.