IFM27075 - Real Estate Investment Trust : breaches of conditions/rules: summary
Source: gov.uk (2025-04-17)


Condition: S528(1)
- Detail: Condition A - Company is UK company.
- Details of sanction: If condition A not met in an AP the company / group is taken to have automatically ceased to be a REIT at the end of the previous AP
Condition: S528(2)
- Detail: Condition B - S236 FISMA 2000 does not apply to company.
- Details of sanction: If condition B not met in an AP the company / group is taken to have automatically ceased to be a REIT at the end of the previous AP
Condition: S528(3)
- Detail: Condition C- shares are admitted to trading on recognised stock exchange or at least 70% of ordinary share capital is owned by one or more institutional investors.
- Details of sanction: If condition C not met Group/Company treated as having ceased to be a UK REIT at end of previous AP.
- Details of relaxation: No breach for 12 months if S528(3)(b) ceases to apply as a result of ceasing to have at least 70% ownership of share capital by institutional investors.
- Details of relaxation: No breach if condition C not met as a result of UK REIT / UK Group REIT joining another REIT.
Condition: S528(4)
- Detail: Condition D - company meets the non-close condition.
- Details of sanction: If condition D not met Company/Group is treated as ceasing to be a UK REIT at end of preceding AP or end of initial 3-year period.
- Details of sanction: Notice may be given that a company/group ceases as a UK-REIT on 1 day of AP1, or such later day as specified, where the business has been transferred, the transferee fails to meet the condition and transferor failed to meet it during the initial 3-year period
- Details of relaxation: A breach of Condition D is ignored if it occurs during first 3-year period
- Details of relaxation: No breach if condition D not met as result of UK REIT / UK Group REIT joining another REIT
- Details of relaxation: No breach if condition D not met due to something done/not done by person other than company and breach remedied by the end of following AP.
Condition: S528(6)
- Detail: Condition E - one class of ordinary shares and preference shares must be non-voting.
- Details of sanction: If condition E not met in an AP the company / group is taken to have automatically ceased to be a REIT at the end of the previous AP
Condition: S528(8)
- Detail: Condition F - loan creditors not entitled to either interest depending on results of the company nor a non-commercial rate of return.
- Details of sanction: If condition F not met in an AP the company / group is taken to have automatically ceased to be a REIT at the end of the previous AP
Condition: S528A
- Detail: Ordinary share capital is listed throughout the AP or shares forming part of the ordinary share capital are traded on a recognised stock exchange during the AP. This further condition does not apply where Condition C is met by ownership of at least 70% of the ordinary share capital by one or more institutional investors.
- Details of sanction: If condition in S528A not met the group/company is treated as having ceased to be a UK REIT at end of previous AP.
- Details of sanction: If condition in S528A, as relaxed by S528B, is not met in relation to AP1, AP2 and AP3, the group/company is treated as having ceased to be a UK-REIT at the end of AP2.
- Details of sanction: Notice may be given that a company/group ceases as a UK-REIT on 1 day of AP1, or such later day as specified, where the business has been transferred and the transferee fails to meet the S528A condition and transferor failed to meet the condition during the initial 3-year period
- Details of relaxation: S528A treated as met for APs 1-3 if at the end of AP3 ordinary share capital is listed or shares forming part of the ordinary share capital are traded on a recognised stock exchange during the APs 1-3.
- Details of relaxation: S562B(2) does not apply if condition not met as a result of the REIT / Group REIT joining another REIT.
- Details of relaxation: S562C(2) does not apply if condition not met as a result of the REIT / Group REIT joining another REIT.
Condition S529

Detail: Property rental business condition – the group must meet condition A and Condition B, or condition C throughout the accounting period (S527(2)(b))

Condition A- property rental business has at least 3 properties

Condition B - No one property represents more than 40% of total value of properties in property rental business.

Condition C- The property rental business involves at least one commercial property which is valued at £20million or more at the relevant time (from 11 July 2023).
- Details of sanction: A termination notice may be given where - breach is considered serious
- Sanction section: S575
- there is a breach of the property rental business conditions in S529(1)-(2A) in 3 consecutive APs; or
- during the relevant 10-year period S563(2) has been relied upon more than twice in relation to condition A or condition B or condition C.
- Details of relaxation: Where the property rental business condition is not met for a UK REIT throughout an AP, the breach is to be ignored (subject to S575 rules for repeated breaches)
- Details of relaxation: Rule 1 If breach of condition B is a necessary consequence of breaching condition A then ignore breach of condition B in relation to the 10-year period.
- Details of relaxation: Rule 2 If breach of the property rental business condition lasts for more than one AP but not more than two APs then for purpose of S575 treat the REIT as having relied on S563(2) only once.
Condition: S530
- Detail: The PID distribution requirement
- Details of sanction: A termination notice may be given where breach is considered serious
- Details of relaxation: The breach is ignored but S565 amount is chargeable.
Condition:S531
- Detail: Condition A- Profits of PRB are at least 75% of aggregate profits of group or company
- Details of sanction: A termination notice may be issued if there is: a) a breach of condition A or B in S531 in three consecutive APs or b) during the relevant 10-year period S568(1) has been relied upon more than twice.
- Details of relaxation: AP1 not included.
- Details of relaxation: If condition A not met in an AP other than AP 1, but PRB profits are at least 50% of aggregate profits, breach is ignored
- Details of relaxation: If breach lasts for more than one AP but not more than two APs then for purpose of 10-year period treat as having relied on S568(1) only once
- Details of sanction: A termination notice may be given where breach is considered serious
Condition: S531
- Detail: Condition B - Assets relating to PRB account for at least 75% of total assets of the group or company
- Details of sanction: A termination notice may be issued by HMRC under S572(1) if there is: a) a breach of condition A or B in S531 in three consecutive APs or b) during the relevant 10-year period S568(2) has been relied upon more than twice.
- Details of relaxation: If condition B not met in relation to AP1 breach is ignored if it is met at the beginning of the next AP
- Details of relaxation: If condition B not met in an AP other than AP 1, but PRB assets are at least 50% of total assets, breach is ignored
- Details of relaxation: If breach lasts for more than one AP but not more than two APs then for purpose of the 10-year period treat as having relied on S568(2) only once
- Details of sanction: A termination notice may be given where breach is considered serious and if this relates to AP1 then cessation may be from 1 day of AP1
Condition: S543
- Detail: Profit: financing cost ratio must be at least 1.25
- Details of sanction: Any excess financing costs are charged to CT in the residual business
- Details of relaxation: CT charge may be waived if : i) company was in severe financial difficulties in AP; ii) Interest cover less than 1.25 due to 'circumstances that arose unexpectedly' & the company could not reasonably have taken action to avoid the result being less than 1.25
Condition: S551
- Detail: Distribution to holder of excessive rights that is not an excluded holder
- Details of sanction: Distributor is treated as receiving an amount of income in in accordance with S552.
- Details of relaxation: If the distributor has taken "reasonable steps" to prevent a distribution to a HoER then there is no charge
Multiple breaches rule (CTA2010/S577) (see IFM27065 (https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm27065)) applies in relation to breaches of conditions in sections 528 to 531