IFM30030 - Real Estate Investment Trust : Joint ventures: Joint Venture Look-Through Notice: Tax-exempt business and other conditions

In deciding whether it meets various regime conditions, the venturing company/group must take account of a portion of the assets, income etc. of the joint venture company/group.  The same definitions of property rental business, assets involved, method of valuation etc. apply as for a UK-REIT meeting the conditions on its own account (see IFM22020).Ìý

Distribution requirement

The venturing company/group must include a relevant portion of the profits of the property rental business of the joint venture company or group in applying the distribution condition in CTA2010/S530.  The relevant portion is by reference to the venturing company바카라 사이트™s/group바카라 사이트™s level of beneficial interest in the joint venture company.

For example, venturing company (V) has 40% of the shares in joint venture company (J).Ìý The income of V바카라 사이트™s tax-exempt business for year to 31 December 2016 is 1,000 and of J바카라 사이트™s property rental business is 500.  To meet the distribution requirement, V must distribute at least 1,080 (= 90% of (1,000 + (500 x 40%))) by 31 December 2017 (the CTSA filing date for V).Ìý   

Balance of Business Conditions A and B

CTA2010/S591 requires the venturing company/group to include a relevant portion of the profits of the property rental business of the joint venture company/group in deciding whether it has met the 75/25 profits test in CTA2010/S531.  The relevant portion is by reference to the venturing company바카라 사이트™s/group바카라 사이트™s level of entitlement to profits from the joint venture company/group. The venturing company/group must include a relevant portion of the value of the assets involved in the property rental business of the joint venture company/group in deciding whether it has met the 75/25 asset test in CTA2010/S531.  The relevant portion is by reference to the venturing company바카라 사이트™s/group바카라 사이트™s level of entitlement to profits from the joint venture company/group.

For example, venturing company V has 40% of the shares in the joint venture company (J).Ìý The fair value of the assets involved in V바카라 사이트™s tax-exempt business for year at 1 January 2017 is 12,000 and in its residual business is 2,000.  The fair value of the assets involved in J바카라 사이트™s property rental business is 8,000, and in its residual business 7,500.  For the 75/25 test, the fair value of the tax-exempt business assets is 15,200 (= 12,000 + 40% of 8,000) and of the other activities 5,000 (= 2,000 + 40% of 7,500).Ìý The condition is therefore met as the ratio is 75.2%. 

However, the joint venture company or group taken separately must also satisfy conditions A and B of CTA2010/S531, which it doesn바카라 사이트™t in the above example. (CTA2010/S591)

Profit finance cost ratio

The profits and financing costs of the joint venture are taken into account in deciding whether the interest cover test is met. This is because CTA2010/S588 and S589 apply the REIT legislation to the joint venture company or members of a joint venture group, as though they were members of a REIT group.