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HMRC internal manual

Guidance on Real Estate Investment Trusts

Miscellaneous: controlled foreign companies

Distributions paid up to 30 June 2009

If a non-resident group member has qualifying UK property, the rental income is exempt from UK tax (although it may well bear tax in the country of residence of the company). When this tax-exempt rental income is paid up to a UK holding company by way of a dividend, the dividend (which would normally be taxable under Schedule D Case V) is also tax-exempt.

There are no rules in the UK-REIT regime that force a non-resident company to pay up the tax-exempt profits as dividends, although there is a requirement that the principal company of the group pays out 90% of an amount that includes the tax-exempt income of that subsidiary. How the principal company finds the cash to distribute is up to them.

However, non-resident members of Group REIT may be affected by the Controlled Foreign Companies (CFC) rules in Part XVII Chapter IV ICTA, which require an acceptable distribution policy to be in place if an apportionment of profits is to be avoided. There are no special rules that alter or dis-apply any of the CFC rules where a UK-REIT is involved. For full guidance on the rules for controlled foreign companies, see INTM21000 onwards.

If the profits of a non-resident member of a Group REIT are apportioned, the section 747(4) ICTA charge to tax is not relieved by sections 119 or 124 or paragraph 32 Schedule 17 FA 2006, even to the extent it includes profits of a UK property business. This is because the amount due under section 747(4) ICTA is not corporation tax (it is a sum equal to CT at the[]()appropriate rate charged as if it were CT), and is not chargeable as income from a property business or a capital gain (so it cannot be profits of a tax-exempt business).

Distributions paid on or after 01 July 2009

These distributions will be subject to Part 9A CTA 2009 which provides that distributions from controlled companies are exempt from tax.