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HMRC internal manual

Guidance on Real Estate Investment Trusts

Distributions: administration: attribution: example


Company C has an accounting date of 31 December and becomes a UK-REIT on 1 January2007. At that date its distributable reserves, including 2006 profits, were 1,000, ofwhich 900 related to income and 100 arose from disposals. In February 2007, C declares afinal distribution of 800 in respect of the previous year’s profits.

The accounts for 2007 show profits of 1,200 of which the company estimates 1,000 relatesto income of its tax-exempt business. No interim distribution is paid in 2007, and a finaldistribution of 1,150 is declared and paid in February 2008.

An interim distribution for the year ended 31 December 2008 of 600 is declared and paid inSeptember 2008. The annual accounts for 2008 show profits of 1,500 of which the companyestimates 1,300 relates to income of its tax-exempt business. A final distribution of 680is declared and paid in March 2009.

An interim distribution for the year ended 31 December 2009 of 750 is declared and paid inSeptember 2009.

The five categories for attributing distributions are as follows:

(a) 90% distribution requirement

(b) income from taxable activities (i) pre-entry and (ii) post-entry

(c) income of property rental business

(d) tax-exempt gains of property rental business

(e) other (i) pre-entry and (ii) post entry

Attribution of profits and distributions

The final distribution in respect of 2006 relates to profits arising out of pre-entrybusiness. C pays out all of this as a normal dividend, and attributes all 800 to (b)leaving the balance of that category to carry forward as 100. The other balance to carryforward is 100, relating to (e).

Of the 1,200 profit for 2007, 200 relates to (b). Of the 1,150 distribution paid inFebruary 2008, 900 (being 90% of 1,000) is attributed to (a). C decides to pay as muchnormal dividend as it can so attributes the remainder to (b).

At the 2008 interim, C decides to pay 540 (90% of the 600 interim distribution) as a PIDearmarked to (a), and the balance of the interim distribution (60) is paid as a non-PIDand earmarked to (b).

Profits for 2008 are 1,500 of which 1170 relates to (a), 200 to (b) and 130 to (c).

The March 2009 dividend is attributed 630 to (a) (to clear the remainder of the 2008 90%mandatory PID) and the balance of 50 is attributed to (b) and paid as a non-PID.

At the 2009 interim, C decides to pay 675 (90% of the 750 interim distribution) as a PID.The balance of 75 is earmarked to (b).

This example is summarised in tables in GREIT08085 to GREIT08095.