IFM27015 - Real Estate Investment Trust : Breaches of conditions: Admitted to trading, “listed” or traded and 'not close' requirements): take-overs: CTA2010/S562(2), 562A(5), 562B(3) and 562C(3)
Source: gov.uk (2025-04-17)


The general rule for breach of
- company condition C - shares admitted to trading on a recognised stock exchange or at least 70% of the ordinary share capital held by one or more institutional investors (see IFM22010 (https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm22010)),
- the further condition relating to shares - “listed” throughout the accounting period or traded during the period on a recognised stock exchange (see IFM22010 (https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm22010)) or
- condition D – company meets the non-close condition, subject to the relaxation given by CTA2010/S527(6)
is automatic termination, taking effect from the end of the previous accounting period (see IFM27025 (https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm27025)).

However, if the company or group has been taken over by another UK-REIT, it can remain in the regime despite a breach of any of these conditions (CTA 2010/S562(2) and S562A(5)).

Where the target company or group had been admitted to trading on a recognised stock exchange, then following a successful take-over, the shares of the target company (principal company in the case of a Group REIT) will no longer be admitted to trading on the recognised stock exchange. The target would therefore fail the “admitted to trading” requirement of company condition C, and the regime would normally cease to apply with effect from the end of the previous accounting period.

Likewise, on a take-over, shares in the target will no longer be “listed” on a recognised stock exchange or may fail to be traded on a recognised stock exchange during the accounting period, resulting in a breach of the CTA2010/S528A “listed” or traded requirement.

For accounting periods that begin on or after 1 April 2022, the target may also be able to continue to meet company condition C following the take-over by virtue of having previously met the condition due to at least 70% of the shares being held by one or more institutional investors. If the target previously met company condition C through ownership by institutional investors but no longer meets the threshold of at least 70% ownership following the take-over, they will have 12 months from the date of the take-over before they are considered to have failed to meet company condition C (See IFM22010 (https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm22010)).

The target company (principal company in the case of a Group REIT) may become a close company, as that term applies for the purposes of CTA2010/S528 (4) and (5) (see IFM22015 (https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm22015)) at some stage during the take-over bid, and may, therefore, fail Company Condition D unless it is a close company only because it has an institutional investor as a participator. Normally, this would also stop the regime applying from the end of the previous accounting period.

However where the company that initiates the take-over is also a UK-REIT, or part of a Group REIT, even if the target fails company conditions C, D or the “listed” or traded requirement for the accounting period in which the take-over happened, it will remain in the regime (CTA2010/S562(2), 562A(5), B(3) and C(3)). Furthermore, these breaches do not count towards the number of times conditions can be breached before being expelled from the regime.

If the company that initiates the take-over is not also a UK-REIT, or member of a Group REIT, then the target will generally cease to be a UK-REIT from the end of the accounting period before the condition was breached. The exception to this is where the only breach relates to condition D (‘not close’) and is remedied by the end of the accounting period following the one in which the breach occurred. In that case, the company can remain in the regime, provided it meets all the other conditions for being in the regime (CTA2010/S562A(6)) (see IFM27020 (https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm27020)).

A REIT should talk to HMRC if it is concerned about how being subject to a take-over bid will affect REIT status.

Example

Companies P and T both make their accounts up to 31 December. T is a UK-REIT. P is the principal company of a group. In May 2024, P launches a takeover of T. P’s stake in T increases, the takeover goes unconditional and on 1 November 2024, T ceases to be admitted to trading, its shares cease to be ‘listed’ or traded, and it becomes a subsidiary of P. As at least 70% of the share capital of T is not held by institutional investors either before or after the takeover, T breaches company condition C when it ceases to be admitted to trading.

If P’s group is not a Group REIT, T stops being a UK-REIT with effect from 31 December 2023. The profits and gains of its property business arising after 1 January 2024 are taxable (although T will continue paying property income distributions under deduction of basic rate tax until it has distributed all the property rental business income and gains that arose up to 31 December 2023).

If P’s group is a Group REIT, then T does not cease to be a UK-REIT between 1 January and the date it ceased to be admitted to trading or ‘listed’/traded on the recognised stock exchange. There is no deemed sale and reacquisition of the assets of the property rental business of T (CTA2010/S579(9) and S536(7)).