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HMRC internal manual

Guidance on Real Estate Investment Trusts

Conditions and Tests: maximum shareholding: definition of company and meaning of beneficially entitled

The definition of a holder of excessive rights (HoER) in regulation 1(2) SI 2006/2864contains the terms ‘control’, ‘directly’, ‘indirectly’ and‘beneficially entitled’. None of these are defined specifically for thispurpose. The only term in the definition that is defined is ‘company’, and thatis based on how the word is used in double tax treaties. HMRC will interpret the otherterms consistently with that. Some examples are set out below. In them, C is UK-REIT and Ais a company that may be a HoER.


This is defined as taking the usual section 832(1) ICTA meaning (any body corporate orunincorporated association, but excluding a partnership, local authority or localauthority association) and any entity that is treated as a body corporate for tax purposesunder any of the UK double tax treaties.

Beneficially entitled

The usual meaning of beneficially entitled will generally apply – that is, theperson who receives the dividend and has no legal obligation to pass it on to anotherperson. For example, where A uses nominee N to hold their shares in C, C pays the dividendto N but N is required to pay that over to A. The person beneficially entitled to thedividend is therefore A, and not N.

If A owns 100% of the shares in company B, which in turn owns shares in C, B (rather thanA) would be the person with direct beneficial entitlement to C’s shares or dividends.A would not generally be regarded as having indirect beneficial entitlement to C’sshares or dividends.

Although in some circumstances, a ‘conduit’ company P may not be regarded as thebeneficial owner of income it receives from C (as was the case in Indofood InternationalFinance Ltd v JP Morgan Chase Bank NA, London Branch [2006] EWCA Civ 158), it is unlikelyto be the deciding factor in deciding whether the owners of P are HoERs on account ofindirect entitlement to dividends. This is because it is more than likely that the ownersof P would have indirect control of voting rights held via P, which would be taken intoaccount in looking at whether the owners of P were HoERs on account of control of votingrights.