IFM27030 - Real Estate Investment Trust : Breaches of conditions: The Property Rental Business Condition: CTA2010/S563 and S575
Source: gov.uk (2025-04-17)


To join and remain in the regime, a UK-REIT is required to meet the property rental business condition. This will be satisfied if Condition A and B or, alternatively, from 11 July 2023, Condition C of CTA2010/S529 are met throughout each accounting period. Condition A is to have at least three qualifying properties and Condition B is that no one of those properties represents more than 40% by value of the assets of the property rental business. Condition C is met where there is at least one commercial property with a value of at least £20million at, or after, the relevant time. (see IFM22020 (https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm22020)).

The REIT or principal company of a Group-REIT must notify HMRC as soon as reasonably practicable if the property rental business condition ceases to be met (see IFM27010 (https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm27010)).

CTA2010/S563 provides that a breach of the property rental business condition may be ignored. However, a notice of removal from the regime under CTA2010/S572 may be issued by HMRC where:
- there is a breach of the property rental business condition in three consecutive accounting periods (CTA2010/S575(1)),
- the UK-REIT has relied upon CTA2010/S563 in respect of one of conditions A, B or C more than twice in a 10-year period (CTA2010/S575(2))
- the multiple breaches of Chapter 2 conditions rules are engaged by the breach (CTA2010/S577)
or
- the breach is considered so serious that the group or company should cease to be a UK REIT (CTA2010/S574) (see IFM27071 (https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm27071)).
See IFM27035 (https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm27035) for examples of how the rules interact.

Repeat and multiple breaches – termination

If the property rental business condition is breached more than twice in ten years in relation to property rental business condition A, HMRC may issue a notice to terminate and the regime ceases to apply with effect from the last day of the accounting period before condition A was breached for the third time. The same applies if the breaches are in relation to condition B or condition C more than twice in ten years.

For these purposes, a failure to meet the property rental business condition that lasts for two accounting periods (but no longer) counts as a single breach (CTA2010/S575(4)). Also if property condition B is breached as a consequence of breaching property condition A, this breach does not count as a separate breach for the purpose of CTA2010/S575(2).

A breach of the property rental business condition is also included in the count of breaches for the purposes of CTA2010/S577 which deals with multiple breaches of Chapter 2 conditions (see IFM27065 (https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm27065)).

Breaches occurring in three successive accounting periods

If a breach of the property rental business condition occurs in three or more successive accounting periods HMRC may issue a notice to terminate - CTA 2010/S575(1). The notice under CTA 2010/S572(1) provides that the UK-REIT regime ceases to apply with effect from the end of the second accounting period (being the end of the accounting period before the accounting period of the last event that triggered the notice (CTA2010/S572(4)).

Serious breach

If an officer of HMRC thinks that a breach of the property rental business condition is so serious that the company or group should cease to be a UK-REIT, they may give notice to the company/principal company to remove it from the REIT regime CTA2010/S574(1) (see IFM27071 (https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm27071)). This is regardless of whether the limits for breaching any of the individual conditions, or the multiple breach limits have been reached. The consequences of the issue of a termination notice by HMRC are dealt with at IFM26025 (https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm26025).