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HMRC internal manual

Guidance on Real Estate Investment Trusts

HM Revenue & Customs
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Breaches of conditions: Distribution Condition: general


The company (principal company in the case of Group REIT) must distribute as propertyincome dividends 90% of the income of its tax-exempt property rental business (section107(8) FA 2006). The 90% distribution requirement must be met in respect of eachaccounting period of the company, and must be met by the filing date for the CTSA returnfor that accounting period.

If the company has distributed less than 90% of the tax-exempt profits for any of thefollowing reasons:

  • legal impediment to distribution (see GREIT02055),
  • finally agreed measure of tax-exempt profits is higher than the amount returned (see below), or
  • sufficient distributions are declared but not paid out to certain shareholders as a result of reasonable steps taken in connection with the 10% rule (see GREIT07060),

the company (or group) can remain in the regime and the minor breach provisions are notinvoked.

Failure to meet the Distribution Condition for any reason other than these (unless the breachis regarded as serious) does not result in removal from the regime. For minor breaches,the remedy is a tax charge on the company, to make good any shortfall in tax that wouldhave been deducted had the full 90% been distributed by the right date, as set out inregulation 6 SI 2006/2864. For details of when and how the regulation 6 tax charge iscalculated, see GREIT07050.

Post-filing day adjustments to computation of tax-exempt profits

The measure of profits for the 90% distribution requirement is the income as measuredfor tax purposes of the tax-exempt business. The company will include an amount on itsCTSA return for the period, but this may be altered subsequently, for example as theresult of an HMRC enquiry. If the profit that is eventually agreed is higher than theamount returned, it is possible that the company will not have paid enough PID by the CTSAfiling date to meet the 90% requirement.

Provided the company declares and pays an additional PID to reflect the higherdistribution requirement within three months of the day from which the profits can no longer be altered, notax charge arises to the company under regulation 6. Note however that an additionaldividend declared to avoid a charge under regulation 6 does not count towards meeting the90% distribution requirement for any other accounting period.

‘Can no longer be altered’ means when the assessment for the accounting periodis final. Where there has been an enquiry into the return, the assessment can no longer bealtered once either the company or HMRC has amended the original self assessment to thefinally agreed profits, and the time limit to object to that amendment has passed.