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HMRC internal manual

Guidance on Real Estate Investment Trusts

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HM Revenue & Customs
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Entry to the regime: entry charge: examples and payment by instalments

Example 1 - company joins regime at end of a period of account

Company C normally makes its accounts up to 31 December, and joins the regime with effect from 1 January 2009 when the market value of the properties involved in the property rental business is 28,000.

The first accounting period the company is in the regime is the year ended 31 December 2009. Notional income of 2,000 (= 28,000/0.28 x 2%) arises on 1 January2009. This results in CT of 560 (under the rate of Corporation Tax charged at the time), payable on the normal due date(s) for an accounting period running from 1 January to 31 December 2009 (i.e. as part of the 2009 Quarterly Instalment payments (QIPs) or 1 October 2010, if the company does not pay QIPs).

Example 2 - company joins regime part way through a period of account

Company C normally makes it accounts up to 31 March. It joins the regime with effect from 1 January 2009, when the market value of the properties involved in the property rental business is 28,000.

The first accounting period the company is in the regime is the three month period from 1 January to 31 March 2009. Notional income of 2,000 (= 28,000/0.28 x 2%), (under the rate of Corporation Tax at the time), arises on 1 January 2009. This results in CT of 560, payable on the normal due date(s) for an accounting period running from 1 January to 31 March 2009(i.e. as part of the July 2009 QIP or 1 January2010, if the company does not pay QIPs).

Payment by instalments

A company / member of a group may elect to spread the Entry Charge (see GREIT03025) over four years. If the company elects for this, the notional income is treated as arising in four instalments. The first instalment arises on the date the Real Estate Investment Trust legislation first applies to the company. The remaining instalments arise at annual intervals thereafter.

The percentages of the market value of the deemed disposal proceeds that are brought into charge are as follows:

  • 0.50 per cent for the first instalment,
  • 0.53 per cent for the second,
  • 0.56 per cent for the third, and
  • 0.60 per cent for the final instalment.

The details of the election are set out in section 540 CTA 2010. It must be made by the company at the same time as notice is given that the company / principal company of the REIT group wishes the Real Estate Investment Trust legislation to apply to it. The election cannot be revoked. If the company is in the regime for a period of less than three years, any remaining instalments are brought into charge in the last accounting period that the company is in the regime.

Companies joining an established Group REIT

In theory, a company joining a regime could make an election to pay by instalments any Entry Charge that arises when it joins a Group REIT. However, in practice, it is unlikely to be possible as the notice has to be given at the same time as the principal company gives notice that its group is to join the regime.