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HMRC internal manual

Guidance on Real Estate Investment Trusts

From
HM Revenue & Customs
Updated
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Miscellaneous: dividend strips

A share dividend is said to be ‘stripped’ when the owner of the share sells or transfers the right to receive a distributions payable in respect of the share, without selling or transferring the share. The tax treatment of the buyer of a strip is dealt with below. For the tax treatment of the seller, see GREIT09185.

Deduction of tax from stripped PID

Where a property income distribution paid by a UK-REIT is stripped, the UK-REIT is obliged to deduct tax on payment, regardless of the nature of the recipient (regulation 7(7) SI 2006/2867).

Tax treatment of buyer of PID

There are no special rules for strips of PID and the normal rules for the taxation of PID apply to PID received by the buyer of PID strips. These are set out at GREIT08500 onwards.

The PID will in general be profits of a property business, chargeable at the buyer’s marginal rate of tax. The exceptions are for PID received in the course of trade carried on by a dealer in shares or a member of Lloyd’s when the trading provisions of CTA 2009 have priority. These are taxable as trading income of the buyer. The cost of the strip will be an expense of the trade.

The recipient of the PID will be able to offset the tax deducted from the PID on payment against their UK tax, claim repayment if they have no net liability to tax or (for non-residents) claim relief under the dividend article of the relevant double tax treaty.