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HMRC internal manual

Guidance on Real Estate Investment Trusts

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HM Revenue & Customs
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Distributions: attribution rules: category (c) - other income of the tax-exempt business: examples

Facts for example 5

C has distributable reserves of 500 brought forward. This includes 150 income from thetax- exempt business of previous accounting periods that has not yet been distributed (c);the balance is ‘other’ reserves (e). In accounting period ending 31 December2010, the income of its tax-exempt business is the same as the accounting measure ofprofit, and is 1,000. The taxable income from other activities is 130 and chargeable gainsfrom other activities are 70. Distributable reserves are 1,700. C pays no distributions in2010 to which profits of the current year are attributed but decides to distribute 1,200in March 2011 attributed wholly to 2010 profits.

Example 5

Having decided how much to distribute, the next step is to deduct the 90% Category (a)requirement (900) from the distributable reserves and allocate the 800 balance to the fourelements of the brought forward pot (see GREIT08010). Incomefrom taxable activities (b) is 130, tax-exempt income (c) is 150 b/f + 100, other (e) is350 b/f + 70.

The final step is to attribute the 1,200 distribution by reference to the five categories.The first 900 is Category (a) and is a PID payable under deduction of basic rate tax(other than for gross payment cases – see GREIT08125). Cdecided to attribute 130 of the balance to Category (b) (taxable income). This is payablegross as a normal company dividend.

C has no choice about the balance of 170 left to attribute – this is attributed toincome of the tax-exempt business, up to the amount in that element pot (250). Thereforethe entire 170 is a PID attributable to Category (c) and payable under deduction of basicrate tax (other than for gross payment cases).

The 500 distributable reserves to carry forward will be made up of (c) 80 tax-exemptincome and (e) 420 other.

This table summarises the position:

Category reserves at allocate profits of 2010 reserves c/f attribute 2010 final distribution reserves c/f
           
  31-Dec-09     Mar-11  
(a)   900 900 (900) -
(b)   130 130 (130) -
(c) 150 100 250 (170) 80
(d)         -
(e) 350 70 420   420
           
totals 500 1,200 1,700 (1,200) 500