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HMRC internal manual

Guidance on Real Estate Investment Trusts

From
HM Revenue & Customs
Updated
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Taxation of investors - distributions - Corporation Tax payers

For corporation tax payers, PIDs are generally taxable as income from a property business. This is unlike normal company distributions, which are exempt from tax in the hands of most UK companies. PID will in general be paid gross to persons within the charge to UK corporation tax.

The exception to the property business treatment is where the recipient is a member of Lloyd’s or a financial trader, when the PID is treated as a receipt of their Schedule D Case I trade.

There are no special rules regarding disposals by a company of shares in a UK-REIT, apart from where shares are held as part of the long-term fund of a life assurance company. In these circumstances, the shares are treated in the same way as shares in AUTs and OEICs, with changes in fair value of the holding taxable each year.

Authorised investment trusts

There are no special rules for PID in the hands of authorised investment funds (AIFs). They are payable gross because an AIF is within the charge to CT, and the AIF pays tax at their usual rate of 20% on the income.

For the purposes of the corporate streaming rules in regulations 48 to 50 of the Authorised Investment Funds (Tax) Regulations (SI2006/964), PIDs count as unfranked income, as they do not carry section 231 ICTA tax credits (section 121(5) FA 2006). Under these rules, a participator in the AIF which is within the charge CT is treated as though they had received an annual payment, paid under deduction of lower rate (20%) to the extent the distribution from the AIF reflects unfranked income.

Approved Investment Trusts

There are no special rules for PID in the hands of an investment trust company that is approved by HMRC for the purposes of section 842 ICTA. They are payable gross because an approved investment trust company is within the charge to CT, and tax is paid at their usual rate of 30% on the income.

Distributions from a UK-REIT is income derived from shares for the purposes of section 842(1)(a), even though they are taxable in the hands of the investment trust company as Schedule A income.