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HMRC internal manual

Guidance on Real Estate Investment Trusts

HM Revenue & Customs
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Miscellaneous: indirect ownership of property: non-resident unit trusts

There is no single answer that applies to all non-resident unit trusts, and not evenone for all unit trusts established in a particular location. The result depends on thenature of the deed establishing the trust as well as the laws of the jurisdiction underwhich the trust is set up. There are two broad alternatives: the entity is transparent forincome, or it is not.

Transparent for income

Here, the unit holders are entitled to the income of the underlying assets as itarises. This is typically the case where there are a small number of unit holders, a smallnumber of properties and little change in either over time. To the extent the incomearises from property that meets the definition for a property rental business, then anEntry Charge will be payable in respect of the unit holder’s interest in the property heldby the trust and the income arises to C (tax-exempt).

Note however that property owned via a unit trust (even if it is transparent) is unlikelyto count as a ‘single property’ for the purposes of Tax-exempt business Conditions 1 and2. This is because a single property is a unit capable of being let out: it is hard toimagine how a part share of a shop say could be let out separate from the parts of theshop owned by the other unit holders.


The alternative is that unit holders are entitled to payments out of the trust at thediscretion of the trustees/ managers. This is typically the case where there are a largenumber of unit holders, a large number of properties and frequent change in both overtime. The payments made to unit holders, even though they may arise to the trustees asproperty income, will generally be an annual payment for UK tax purposes. No Entry Chargewill be payable in respect of the unit holder’s share in the value of the property held bythe trust, and the annual payments arise to C (residual).

Which applies?

Whether or not a non-resident unit trust falls in the first or the second categorydepends on the nature of the trust deed and local law. It is the responsibility of theunit holder to seek advice on the basis of applicable law, and to be prepared to sharecorrespondence on the subject with HMRC if questions are asked.

Disposals and part-redemption of units

Note that, because of the effect of section 99 TCGA, sale or full or partial redemptionof a holding of units in a non-resident unit trust will result in a chargeable gainarising to C (residual). This is regardless of whether the unit trust is transparent orotherwise for income purposes.