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HMRC internal manual

Guidance on Real Estate Investment Trusts

Conditions and Tests: maximum shareholding: reasonable steps: payment of a dividend where rights to it are transferred

The third criterion for arrangements to be reasonable is that the company needs a mechanism to allow dividends to be paid on shares that form part of an excessive shareholding where the right to the dividend has been transferred. The company can satisfy this requirement by obtaining a certificate from the shareholder that the right to the dividend had been transferred. The certificate should also include confirmation that the transferees are not, or not become, HoERs as a result of acquiring the right to the dividends.

Certification by the shareholder is needed because it would not be easy from its own records for the company or its registrar to establish that a transfer of the right to the dividend had taken place. This is because no entry would be needed in the share register as the transfer would normally be affected by a mandate to the registrar to pay the dividend to a different person than the registered holder of the shares, but such a mandate would not necessarily indicate that the right to the dividend had been transferred.

It would not be necessary for the company to require a new certificate for each dividend payment, provided the certificate included an undertaking that all future dividends would also be disposed of. For on-going certificates, it should include an undertaking on the shareholder to inform the company immediately the circumstances which gave rise to the certificate changed. The company needs to be able to withhold payment of a future dividend or force sale of the shares if it believes the undertakings in the certificate have not been complied with.

Transfer of rights to dividends

There are a number of legal arrangements that transfer the rights to dividends, including a dividend strip, under which legal ownership of the shares is not transferred at the same time as the right to the dividend is transferred. For information on the tax treatment of dividend strips, see IM4580. Note that there is a range of anti-avoidance rules that apply when dividends are stripped, and they are NOT disapplied just because a Property Income Distribution, (also referred to as a PID see GREIT08005 for more information on PIDs) is stripped to avoid the company incurring a charge under section 114 FA 2006.

Transfers can also happen under stock lending or repo arrangements, where the legal (but not the economic) ownership of the shares is transferred. Where the arrangements take place over a dividend date, the transfer of rights will include transfer of beneficial ownership of the dividend and a manufactured dividend payable by the stock borrower - see GREIT09150 for information on tax rules for manufactured PID and CFM17300 for rules for manufactured dividends in general.


The company does not need to verify independently the accuracy of any certificate relied on for these purposes and may rely on it unless it is obviously suspect. The Articles of Association could make provision to force sale of the shares and for the company to retain from the proceeds any additional tax [and any costs borne by the company] as a result of misrepresentation by that shareholder (see GREIT02135). Note that this certification process does not indemnify the company against a regulation 10 charge - it merely provides for civil redress from the shareholder who has misled them.

The company would need to retain these certificates and be willing to supply them to HMRC if ever there were a treaty claim in respect of a dividend on an excessive holding.