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HMRC internal manual

Guidance on Real Estate Investment Trusts

Distributions: attribution rules: leaving the regime and liquidations

Company or group ceases to be a UK-REIT

Even though a company or group is no longer a UK-REIT, the requirement to attribute distributions to tax-exempt income and gains continues until an amount equal to total profits (income and gains) of the tax-exempt business have been distributed as PID.

The section 107(8) FA 2006 requirement to distribute 90% of the tax-exempt income of the accounting period does not apply once the company has left the regime (it is a condition of remaining in the regime). Therefore the company (principal company of a Group REIT) need only attribute post-cessation distributions across Categories (b) to (e) - Category (a) is zero.

The company may if it chooses attribute as much as it can to (b) ‘income from taxable activities’, which will be more or less the entire income of post-REIT accounting periods. But to the extent the subsequent distributions exceed ‘income from taxable activities’, the distributions must be paid out as PID. To avoid prolonged record keeping, companies that have left the regime may prefer to pay out all the remaining profits of the tax-exempt business as PID as soon as practicable after leaving the regime.

Former principal company of Group REIT

For a company that was the principal company of Group REIT, the continuing obligation to pay out distributions as PID is based on the amount of profits (income and gains) that arose from tax-exempt business of companies that were members of the group when it was a UK-REIT.

Company leaving a Group REIT

Where a company leaves a Group REIT, the amount of any tax-exempt income or gains earned by the departing company remain as part of the amounts in Categories (a) (in the first year after the company leaves the group), (c) and (d). There is no reduction in the amounts in these categories on account of the company leaving the group. It is up to the group to ensure that sufficient value has been retained within the group to meet in particular the distribution requirement in the year after the company has left. As such, divesting itself of a subsidiary does not remove the obligation to distribute as PID tax-exempt business profits earned by that company when it was covered by Part 4 of FA 2006 as a member of a Group REIT.

Company liquidations

Where a company that has been a UK-REIT, or where the principal company of a group REIT, appoints a liquidator, HMRC will maintain a close eye on the progress of the liquidation to ensure that all the profits of the tax-exempt business are distributed to shareholders as PID before agreeing to the company’s affairs being wound up. Note that

  • Appointment of a liquidator of a REIT subsidiary does not require a distribution of the reserves of that subsidiary to the ultimate shareholders of the REIT and
  • payments made by companies that rank as ‘distributions’ for tax purposes, but which are not ‘dividends’ are still covered by the PID rules.