D7.1111 Cessation of 'pre-entry' business
Any property rental business the company was carrying on is deemed to cease at the point of entry to the regime1. This applies to all companies whether or not UK resident.
Accordingly, the property rental business carried on subsequently is a new business, set up and commenced at the date of entry. Any tax losses attaching to the property rental business before entry will, therefore, lapse on entry to the regime. In addition, one accounting period is deemed to end and another to begin2.
All properties involved in the property rental business of the 'incoming company' are deemed to be sold and immediately reacquired at market value3 by the company's business on entry to the REIT regime4.
It is not possible to elect for certain properties not to be treated as part of the property rental business. The deemed sale and reacquisition has effect for any future actual or deemed disposal of the asset5, unless the provisions of CTA 2010, s 556(2) (see D7.1115B) or CTA 2010, s 581 (see D7.1140) apply. Any gain arising as a result of the deemed disposal is not a chargeable gain6 and is therefore not subject to tax.
Properties that are held as trading stock are not properties of the property rental business and as such there is no sale and reacquisition of these properties; also any income from these properties is treated as part of the residual business7, see D7.1102.