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HMRC internal manual

Guidance on Real Estate Investment Trusts

From
HM Revenue & Customs
Updated
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Distributions: attribution rules: category (c) - other income of the tax-exempt business: consequences of Category (b) choices: example

Facts for example 4

C becomes a UK-REIT on 1 January 2007, has no distributable reserves brought forwardonce it has paid out the final distribution for 2006 (which was all paid as a non-PID).For the accounting period ending 31 December 2007, the income of its tax-exempt businessis 1,000, and is the same as the accounting measure of profit. The gains as measured forTCGA purposes 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 other non tax-exempt activities are 70. The company’s income accrues evenly overthe year. Distributable reserves in respect of 2007 are 1,300.

Example 4

Using the facts in Example 1(1) in GREIT08023, C hasdecided not to allocate the excess over the 90% requirement entirely to ‘taxableincome’. C has two choices.

  1. C may decide to attribute none to Category (b). In this case the balance of 50 is a PID, attributed to income of the tax-exempt business and payable under deduction of basic rate tax (other than for gross payment cases – see GREIT08125). The 350 distributable reserves to carry forward will be made up of (b) 130 income from taxable activities, (c) 50 income from the tax-exempt business, (d) 100 gains from the tax-exempt business, and (e) 70 other reserves.
     
  2. C may decide to attribute only 30 of the balance to Category (b). The remaining 20 is therefore attributable to (c) income of the tax-exempt business, and is a PID and payable under deduction of basic rate tax (other than for gross payment cases – see GREIT08125). The 350 distributable reserves to carry forward will be made up of (b) 100 income from taxable activities, (c) 80 income from the tax- exempt business, (d) 100 gains from the tax-exempt business, and (e) 70 other reserves.