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HMRC internal manual

Guidance on Real Estate Investment Trusts

HM Revenue & Customs
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Distributions: attribution rules


The rules for identifying which distributions made by the company(principal company in the case of a Group REIT) are from profits of the tax-exemptproperty rental business (and thus payable under deduction of income tax) are in section123 FA 2006. It does this by requiring the company to attribute each distribution acrossfive categories by reference to the activities that gave rise to the amounts in thecompany’s distributable reserves.

The five categories are:

  1. Payments out of tax-exempt income to meet the 90% distribution requirement
  2. The company’s choice of an amount derived from ‘taxable income’
  3. Other income of the tax-exempt business
  4. Gains of the tax-exempt business
  5. Anything else

The amounts that are attributed to profits (income and gains) of the tax-exemptbusiness (i.e. categories (a), (c) and (d)) are referred to in guidance (but not inlegislation) as property income distributions or PIDs. These are in general treated asincome from UK property in the hands of the recipient.

Any other payments made by the company, and all distributions made by subsidiaries of aGroup REIT that are treated as distributions for tax purposes are not subject to thededuction of basic rate income tax rules that apply to PIDs (referred to in guidance as‘non-PID dividends’).

Amounts attributed to Categories (a), (c) and (d) will always be PID and payable underdeduction of basic rate tax (apart from where regulation 7 SI 2006/2867 applies to allowgross payment see GREIT08125. Amounts attributed toCategories (b) and (e) will always be payable as normal company distributions. For moredetail on each of the categories and examples, see GREIT08020.

Before considering how any individual distribution is to be attributed, as a prior step,the company needs to establish the distributable reserves as shown in the most recent setof accounts. For a Group REIT, the principal company must first of all establish the groupconsolidated distributable reserves (which are likely to be different from the sum of thedistributable reserves of each member of the group) and to split that between those thatrelate to activities giving rise to income and those from other activities. This mightinclude for example gains on disposals of assets.

In addition, the company will need to estimate the profits of the tax-exempt business, soas to ensure that the distribution requirement can be met in respect of the accountingperiod from distributions paid before the filing date of the CTSA return for that period.

Dividend vouchers

In the dividend vouchers provided to shareholders, there is no need to spell out theattribution of the PID part of the payment to categories (a), (c) and (d), nor from whichaccounting period the distributable reserves originate. The vouchers need show only theaggregate amount that is derived from profits of the tax-exempt business. Similarly,non-PID dividends that relate to Category (b) or (e) can be shown as a single amount,without showing the attribution to category or accounting period.


In the reconciliation that accompanies the final CT61(Z) for the return period endingon the last day of the accounting period, the company does need to show how the PID andnon-PID dividends paid in the accounting period have been attributed by the company to thefive categories. Although not required by the legislation, the company may find it helpfulto identify within Category (a) the accounting periods to which the mandatory 90% PIDrelates.

If the company did not pay any PID in the final return period, it is sufficient to send inthe reconciliation – there is no need to send in a nil CT61(Z).