When can HMRC terminate a company's UK REIT status under section 574?

An HMRC officer may issue a termination notice under section 574 where a company or group has seriously breached the property rental business conditions, profit distribution condition, or balance of business conditions. A notice may also be issued where a group member has attempted to obtain a tax advantage and the breach is serious enough to justify removal from the UK REIT regime.

What happens when a balance of business assets breach triggers backdating under section 574?

If the balance of business assets condition under section 531 is breached in an accounting period and remains unmet at the start of the next accounting period, the termination is backdated. The group or company is treated as having ceased to be a UK REIT from the first day of the accounting period in which the breach originally occurred, not from the date the notice was given.

What are the tax consequences of a backdated UK REIT termination?

When a UK REIT termination is backdated, the company or group loses its REIT tax exemptions from the earlier date. This means property rental business profits for the entire accounting period in which the breach occurred become subject to corporation tax in the normal way, rather than being exempt under the REIT regime.

Which conditions must a UK REIT meet to avoid termination under section 574?

A UK REIT must meet ongoing conditions including the property rental business conditions under section 529, the profit distribution condition under section 530, and the balance of business conditions under section 531 relating to assets and income. A serious breach of any of these conditions, or an attempt to obtain a tax advantage, may lead HMRC to issue a termination notice.

Corporation Tax Act 2010 section 574

Notice under section 572: serious breach

Section 574 allows an HMRC officer to terminate a group's or company's UK REIT status where there has been a serious breach of the REIT conditions or an attempt to obtain a tax advantage.

An HMRC officer may issue a termination notice if a breach of the property rental business conditions, the profit distribution condition, or the balance of business conditions is serious enough to justify removal from the UK REIT regime
A termination notice may also be issued where a group member or company has attempted to obtain a tax advantage and the officer considers this serious enough to warrant removal from the regime
Where the breach relates to the balance of business assets condition and that condition remains unmet at the start of the next accounting period, the termination is backdated to the first day of the accounting period in which the breach occurred
The effect of backdating means the group or company is treated as having ceased to be a UK REIT from the beginning of the earlier accounting period, rather than from the date the notice is given

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