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HMRC internal manual

Guidance on Real Estate Investment Trusts

Background: navigating the legislation

The legislation in Part 4 FA 2006 runs from section 103 to section 145, along with Schedules 16 and 17. In addition, more detailed rules are contained in four sets of regulations, SI 2006/2864 to 2867, laid on 1 November 2006 and those laid in December 2007 (SI2007/3425; 2007/3536 and 2007/3540) and in June 2009 (SI2009/1482).

Purposive nature of UK-REIT legislation - section 103 FA 2006

The Finance Act legislation begins with section 103, which is not operative, merely introductory. It provides that in return for opting for the benefit of some exemptions from CT, the UK-REIT and its shareholders will have certain obligations and liabilities to tax imposed on them. The reason for including this kind of introductory section is to allow for a more purposive interpretation of the legislation, if any of its provisions are capable of more than one meaning.

Key concepts - sections 104 and 105 and Schedule 16 FA 2006

Sections 104 (along with detail in Schedule 16) and 105 set out two basic concepts that run through the legislation, that of the ‘property rental business’ and the ‘ring fence’.

Rules for single companies - sections 106 to 133 FA 2006

Sections 106 to 133 set out the rules of the regime for single companies that give notice to become a UK-REIT. They cover conditions for joining the regime, tax consequences of doing so (including imposition of an Entry Charge) and tax treatment of the company and the distributions it pays while it is in the regime.

The rules cover the circumstances in which the company can or must leave the regime and the tax consequences of doing so. There are also anti-avoidance provisions and powers to make regulations to deal with the consequences of breaching some of the conditions of the regime.

Rules for groups - section 134 and Schedule 17 FA 2006

Section 134 and Schedule 17 then adapt the rules for single companies to allow a group of companies to become a UK-REIT.

Miscellaneous - sections 136 to 141 FA 2006

Sections 136 to 141 cover a number of miscellaneous points, such as powers to cater for joint ventures in regulations, and adaptation of manufactured dividend rules for distributions that are treated as property income.

Repeal of HIT legislation

Finally, the legislation repeals the FA 1996 provisions relating to investment trusts that invest in housing.