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HMRC internal manual

Guidance on Real Estate Investment Trusts

Distributions: attribution rules: interim distributions

There are no special rules for attributing interim distributions between a PID and a non-PID dividend, and the rules in section 123 FA 2006 apply. There is no obligation to attribute any of an interim distribution to Category (a), towards meeting the 90% requirement for the period as a whole. The requirement is that the sum of the parts of any interim distribution (whether paid half-yearly or quarterly) and final distributions in the period up to the CTSA filing date that are attributed to Category (a) in respect of the accounting period in question must together meet the 90% distribution requirement for that period.

However, that does not leave the company free to treat all of an interim distribution as a normal distribution. There might for instance be insufficient reserves arising under Category (b) to cover the amount being paid, and the company may have to attribute some of it to Category (a), (c) or (d).

The company will in theory be able to attribute as much of its interim distribution to (b) ‘income from taxable activities’ as there is in that pot, before it has to attribute any to (a), (c) or (d) (tax-exempt income or gains). But this will be tempered by the practical need to have paid out as a PID 90% of the tax-exempt income of the relevant accounting period, taking into account the aggregate of the interim and final distributions.

A company might pay too much of an interim distribution as a normal distribution and then find their distributable reserves up to the time of the CTSA filing deadline for that period are insufficient to meet the 90% distribution requirement. This is not a legal impediment under section 107(9)(a) FA 2006 and the shortfall would be treated as a minor breach and tax would be chargeable under regulation 6 SI 2006/2864. Although the company is prevented from distributing enough at the year end, the inability to meet the distribution requirement is a consequence of the company’s attribution decision regarding the interim distribution.

It might therefore be prudent for companies to apportion interim distributions between PID and normal distribution by applying attribution rules by reference to their estimates of tax-exempt income etc arising in the half year (or whatever period is covered by the interim distribution).


C (a UK-REIT) has no distributable reserves brought forward. The half year results of its tax-exempt business are 600 income and no gains, and of its taxable activities, 100. Figures are net of tax. C declares an interim distribution of 250, and decides to treat it all as a normal dividend, payable gross.

The full year results are 1,000 income for the tax-exempt business and 100 for the taxable activities. C must pay distributions in the period up to the CTSA filing deadline of at least 900 as a PID to meet the 90% distribution requirement, but has only 850 reserves to distribute.

C distributes all 850, which is all attributable to Category (a) (meeting the 90% distribution requirement). The whole 850 is a PID and payable under deduction of basic rate tax (other than in gross payment cases - see GREIT08125). Other chargeable income of (50 x 22)/28 will arise to C (residual) in respect of the 50 shortfall.

To be sure of not being caught like this, a cautious company might have treated the entire interim distribution as Category (a) while a less risk-averse one might have treated 100 + 10% of 600 = 160 as a normal dividend and the balance of 90 as Category (a). In both cases the company would then have sufficient reserves to meet the balance of the 90% distribution requirement in subsequent distributions in the period up to the CTSA filing deadline.