UK REITs—anti-avoidance
UK REITs—anti-avoidance

The following Tax guidance note provides comprehensive and up to date legal information covering:

  • UK REITs—anti-avoidance
  • Principal anti-avoidance rule
  • Development properties
  • Holder of excessive rights (or corporate ownership) test
  • Interest cover test
  • Early exit from the UK REIT regime

Produced in partnership with Martin Shah of Simmons & Simmons LLP; material originally written by Charles Goddard of Rosetta Tax LLP

This Practice Note examines the principal anti-avoidance provisions which apply to companies and groups of companies within the UK REIT regime.

These rules amplify the anti-avoidance purpose of the conditions (and tests) for entry to, and ongoing application of, the UK REIT regime. These conditions and tests are considered in more detail in Practice Note: UK REITs—the conditions.

The purpose of the anti-avoidance rules is to prevent companies and groups from obtaining a tax advantage from the use of the UK REIT regime in circumstances where it was not intended to convey the benefit sought or where the benefit sought is greater than the benefit intended to be available.

This is achieved principally by:

  1. imposing tax charges where profits would otherwise be exempt

  2. reducing a deduction or other tax benefit (including, for instance, by reversing the effect of a change in a relevant property's chargeable gains base cost), or

  3. in the last resort, allowing HMRC to issue a termination notice expelling a UK REIT company from the regime

In practice, it is rare, if not unknown, for these rules to be applied, so that the effect of these rules serves principally as:

  1. a deterrent, or

  2. as a limit on the ability of companies to undertake