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HMRC internal manual

Guidance on Real Estate Investment Trusts

Distributions: attribution rules: category (a) - 90% mandatory distribution: examples

Facts for examples

C becomes a UK-REIT on 1 January 2007, has no distributable reserves brought forwardonce it has paid out the final dividend for 2006 (which was all paid as a non-PID). Foraccounting period ending 31 December 2007, the income of its tax-exempt business is 1,000,and is the same as the accounting measure of income profit. The gains as measured for TCGApurposes and accounting profits on disposals of properties involved in the tax-exemptbusiness are both 100. Taxable income from other activities is 130 and chargeable gainsfrom non tax-exempt activities are 70. The company’s income accrues evenly over theyear. Distributable reserves in respect of 2007 are 1,300.

Example 1(1)

C does not make an interim distribution for first half 2007 and in March 2008, declaresa final distribution in respect of 2007 of 950. C does not make any further distributionsin 2008. Category (a) is 90% of 1,000 = 900, is a PID and payable under deduction of basicrate tax.

Example 1(2)

Instead of a single dividend in respect of 2007 profits, C pays an interim distributionof 300 in August 2007, and a final distribution in March 2008 of 650. C estimates that thetax-exempt income of the first half of 2007 is 500, and decides to play safe and pay theentire interim distribution as PID. C does not plan to pay an interim distribution during2008.

To meet the 90% mandatory distribution in respect of 2007, of the distributions paid outfrom 1 January 2007 to 31 December 2008, Category (a) is 90% of 1,000 = 900. C attributesthe entire 300 interim distribution to this category, and 600 of the final distribution.

To avoid paying a small amount as non-PID, C pays the remaining 50 as PID as well. This 50could either be attributed to Category (c) in respect of 2007 profits or earmarked towardsthe 90% mandatory distribution in respect of 2008 tax-exempt income.