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HMRC internal manual

Company Taxation Manual

Property authorised investment funds (Property AIFs): introduction and conditions of membership for the regime: foreign equivalents to ‘UK-REITs’

Where a Property AIF owns shares in foreign entities equivalent to UK Real Estate Investment Trusts (UK-REITs) then the shares will be assets of the property investment business (PIB) (Regulation 69F(1)(c) and (5) SI 2006/964).

The basic characteristics of a UK-REIT are that:

  • most of the assets and income must be derived from the property rental business (75%),
  • it invests mainly in property and that it is exempt from corporation tax on property income, and
  • it must distribute at least 90% of the income it derives from the property rental business.

There are certain other characteristics that must also be present to satisfy the criteria in regulation 69F SI 2006/964 as set out below:.

  • In order to be equivalent to a UK-REIT the foreign entity:
  • must not be required to pay tax on property income in the jurisdiction in which it is incorporated or carries on its business (regulation 69F(5) SI 2006/964),
  • must be a property company, a unit trust scheme or similar arrangement (regulation 69F(3) SI 2006/964),
  • must be listed on a recognised stock exchange (as defined by section 1005(1) of ITA 2007) (regulation 69F(3)(b)(iii) or 69F(6)(a) - depending on the type of entity),
  • must not be a collective investment scheme (as defined by section 235 FSMA00) (regulation 69F(3)(b) SI 2006/964), see CTM48105. If it is a company it cannot be an open-ended investment company as defined by section 236 FSMA 2000 (regulation 69F(6)(b) SI 2006/964 (regulation 69F(6)(b),
  • must have defined capital and should not have any obligation to provide opportunities for redemption of the investment, nor should it have a mechanism to enable investors to sell their investment at or around the underlying net asset value (regulation 69F(3) and (6) SI 2006/964), and
  • is not within the charge to corporation tax in the United Kingdom (regulation 69F(4)).For a list of foreign structures that HMRC has identified as being equivalent to UK-REITs please refer to, which HMRC will update as more structures are identified as acceptable. While this list is not necessarily exhaustive, no other structures should be accepted as being equivalent to UK-REITs by HMRC without agreement from CTIS (Financial Services).

If it is argued that any other structure is equivalent to a UK-REIT, then it must be established that it is not subject to corporation tax and that its property income is exempt from tax in its home jurisdiction, or is subject to tax in such a way to achieve the economic effect of exemption. If these basic requirements are met then HMRC should establish how its capital is defined, how investors can realise their shares or units and whether it is required to be listed on a recognised stock exchange. Having obtained this information, all such cases should be referred to CTIS (Financial Services) for advice.

If the shares are assets of the Property Investment Business then the income from those shares will be income of the Property Investment Business except in as far as any of that income is specifically identified by the payer as not arising from the tax-exempt property business of the payer.

A Property AIF is not required to analyse the income received from a foreign entity equivalent to a UK-REIT for the purposes of pooling income except in so far as the foreign REIT entity itself identifies separate pools within its distribution, as is the case with UK-REITs from which distributions are pooled accordingly (regulation 69G(3) SI 2006/964).