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HMRC internal manual

Guidance on Real Estate Investment Trusts

Conditions and Tests: maximum shareholding: definition of ‘holder of excessive rights’

Where the UK-REIT company (principal company in the case of a Group REIT) has paid out a dividend to or in respect of the holder of excessive rights, and the UK-REIT company has not taken reasonable steps to avoid that happening, a tax charge is imposed on the UK-REIT company.

The kind of rights in the UK-REIT company that count as excessive for this purpose are set out in regulation 1(2) SI 2006/2864. The charge can be triggered only if a dividend is paid to, or in respect of, an excessive shareholding. The existence of such a holding by itself is not sufficient to trigger a charge.

Holder of excessive rights (HoER)

This is a company which:

  • is beneficially entitled, directly or indirectly, to 10% or more of the UK-REIT company’s dividends; or
  • is beneficially entitled, directly or indirectly, to 10% or more of the UK-REIT company’s share capital; or
  • controls, directly or indirectly, 10% or more of the voting rights of the UK-REIT company.

The only term that is defined for this purpose is ‘company’. Here it means a company as defined in section 832(1) ICTA (any body corporate or unincorporated association excluding a partnership, local authority or local authority association) or any entity that is treated as a company under double tax agreements (DTAs).

Other terms are not defined specifically for the purpose of the maximum shareholding rule. As the provision was introduced in the context of double tax treaties, HMRC will interpret words consistently with their DTA meanings. For the application of the excessive shareholding charge, we need to ask whether person X with dividend Y could make a valid claim to repayment of all or part of the tax deducted from the dividend, and if so, could they access a higher rate of reclaim on the basis that they are what is usually described in DTAs as an owner (as distinct from a portfolio investor). For examples of interpretation of the words, see GREIT02115.