IFM22015 - Real Estate Investment Trust : Conditions And Tests: Company Conditions: Conditions D-F: CTA2010/S528(4) - (9)
Source: gov.uk (2025-04-17)


The conditions for joining the REIT regime are set out in CTA2010/S528.

The company/ principal company must meet conditions E - F throughout every accounting period that it is a UK-REIT. They are set out section CTA2010/S528(4) to (9). If the company/principal company fails to meet Conditions E or F at any time, this results in automatic termination of the regime for the REIT (CTA2010/S578). In some circumstances, failure to meet Condition D (non-close condition) will not result in automatic termination (see IFM27015 (https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm27015) and IFM27020 (https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm27020)).

Company Condition D - company meets the non-close condition

This condition is that the company/principal company meets the non-close condition.

The non-close condition is set out at CTA2010/S528(4C). In order to satisfy the non-close condition, a company must not be close, or be close only because it has an institutional investor as a direct or indirect participator.

The starting point in applying Condition D is to consider whether the company is ‘close’ on ordinary principles. This involves considering the general close company rules at CTA2010/PT10 see (CTM60000 (https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm60000) ). The definition of ‘close’ for the purposes of Condition D is as set out in CTA2010/S439, but with several modifications:
- Where the rules in CTA2010/S444 and S447(1)(a) would allow a company to be ‘not close’ where either it is controlled by a company that is not close, or meets the quoted company rule by inclusion of a non-close company holding, the company will nevertheless be treated as ‘close’ for the purposes of Condition D: CTA2010/S528. This effectively prevents a UK-REIT from being a subsidiary of a listed company.
- With effect from 22 February 2024, the rule in CTA2010/s442(a) that a company is not to be treated as a close company if it is non-UK resident is to be ignored: CTA2010/S528(5)(b).
- With effect from 22 February 2024, when applying the attribution rules in CTA2010/S451, the rights and powers of a person (“A”) are not attributed to another person (“P”) merely because A is a partner in the same partnership as P: CTA2010/S528(5D).
- With effect from 22 February 2024, a company is not to be regarded as a close company only because a person possesses or is entitled to possess 50% or more of voting power in C as a result of being a manager of a collective investment vehicle (as defined in TCGA92/SCH5AAA) or a general partner in a limited partnership which is a collective investment scheme: CTA2010/S528(5D). Note that a similar rule applies for non-resident capital gains purposes, however that legislation requires that the manager/general partner holds the “greater part” of the voting power (TCGA92/SCH5AAA/PARA46(2)(e)).
Condition D can also be satisfied if the company is close but only because it has a direct or indirect participator that is an institutional investor. We refer to this as the ‘institutional investor carve out’. The list of institutional investors is given at CTA2010/S528(4A) (see IFM22016 (https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm22016)). For further detail on the application of the institutional investor carve out, see IFM22017 (https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm22017).

Meeting condition D is not a requirement for giving notice under CTA2010/S523 or S524 (CTA2010/S525) (see IFM23010 (https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm23010) for the contents of the notice).

Furthermore condition D does not have to be met in an accounting period of the company/principal company that ends in the first three years the company/group is within the regime (CTA2010/S527(4)-(8)). If the end of the 3-year period falls during an accounting period then condition D only needs to be met in the part of the accounting period that falls after the end of the 3-year period.

However where a company C that did not meet condition D for a time during the first 3-year period transfers its business to another company X then X is treated as if it stood in the shoes of C so that X is treated as having benefited from the relaxation of condition D for that time. This also applies to any subsequent companies taking on the transferred business from X. (CTA2010/S573A)

Changes to the legislation made in Finance Act 2024 introduced the term “the non-close condition”. Prior to this, the condition was set out as not a close company or “is a close company only because it has as a participator (within the meaning given by section 454) an institutional investor.”

Company Condition E - classes of shares

This condition limits the types of shares the company/ principal company may have in issue. The company may issue ordinary share capital and non-voting restricted preference shares. The company/ principal company is further restricted by not being allowed to issue more than one class of ordinary share capital. A REIT can issue non-voting fixed rate preference shares that are convertible into its ordinary shares.

'Ordinary share capital' takes its meaning as set out in CTA2010/S1119

'Restricted preference share' takes its meaning from CTA2010/S160 or would do so but for the fact that it carries a right of conversion into shares or securities in the company. The shares must be within the normal CTA2010/S160 (2) to (7) definition of 'restricted preference share', and should either carry no voting rights at general meetings or only carry rights which are contingent on the non-payment of a dividend and which have not become exercisable up to the date of payment of a dividend. For more detail, see INTM653050 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm653050).

Company Condition F - prohibited types of loan

Company Condition F restricts the ways in which the company/ principal company can borrow money. The company/ principal company cannot borrow under terms that entitle the lender to interest which depends on the results of the company's/ principal company’s business, the value of the company's/ principal company’s assets or is in excess of market rates or which entitles the recipient to receive an excess return on repayment.

The wording in CTA2010/S528(8) is similar to the definition of 'normal commercial loan' in section 162(1)-(5). The main difference is that the CTA2010/S528(8) definition does not refer to convertible loans, which means that a UK-REIT can issue convertible debt, provided that conversion is into the single class of ordinary share or into relevant preference shares that the company is permitted to issue under Company Condition E. CTA2010/S528(9) provides that a loan will not fall within Company Condition F where the interest rate reduces as the company's business profits increase or where it increases as the company's business profits decrease. For guidance on interpretation of 'normal commercial loan' as defined in CTA2010/S162, see CTM81010 (https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm81010).