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HMRC internal manual

Company Taxation Manual

AIFs: Property authorised investment funds (Property AIFs): tax treatment of Property AIFs and distributions: calculation of the net income for the residual business

The income of the residual business is any income of the Property AIF apart from that partof it that is referable to the tax-exempt business.

To calculate the net income of the residual business (regulations 69Z2 and 69Z3 SI2006/964):

  1. Start with the net income of the Property AIF (see CTM48832).

  2. Deduct the net income of the tax-exempt business (see CTM48832).

  3. Deduct any amounts (not already deducted in calculating the net income of the Property AIF) allowed by the Corporation Tax Acts (including any income from UK dividends (section 208 ICTA)).

  4. The result of this calculation is called the “pre-distribution amount”.

(The pre-distribution amount is the amount that must be distributed as Property AIF distributions (interest) – see [CTM48839]( 
  1. Finally, deduct the amount attributed to Property AIF distributions (interest)

If the result of the calculation comes to nil, it does not automatically mean thatthere will be no charge to corporation tax. The residual business of the Property AIF canincur a tax charge in one or more of three different ways:

  • distribution to, or in respect of, a holder of excessive rights (regulation 69Z12 SI 2006/964). Where the Property AIF has made such a distribution (see CTM48834) and the Property AIF has not taken reasonable steps to prevent this occurring (see CTM48817) then the Property AIF will incur a corporation tax charge in accordance with the calculation set out in this regulation,
  • excessive financing costs in the case of a Property AIF that is also a qualified investor scheme (regulation 69Z9 SI 2006/964). See CTM48835, or
  • any tax assessed to the Property AIF under regulation 69Z10 SI 2006/964. This is an anti-avoidance rule and will only apply when a Property AIF does something designed to obtain a tax advantage for itself or another person. See CTM48838.