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HMRC internal manual

Guidance on Real Estate Investment Trusts

From
HM Revenue & Customs
Updated
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Group conditions and rules: Distribution Condition

The test is that the principal company of the group must distribute at least 90% of the tax-exempt income of group members. This is an adaptation of Tax-exempt Business Condition 3 for single company UK-REITs, and is set out in section 107(8), as replaced by paragraph 6(4) Schedule 17 FA 2006 for groups, and modified by paragraph 32(8)(a) for non-resident group members.

The tax-exempt income of the group is:

  • income of UK resident group members computed under section 120 FA 2006, so far as it relates to the property business that is not excluded by Schedule 16 activities and
  • income of non-resident members of the group computed under section 120 FA 2006, so far as it relates to UK property business that is not excluded by Schedule 16 activities.

Use of financial statements for G (tax-exempt)

The figure is derived from the Financial Statement for G (tax-exempt) (that is, the ‘UK profits’ of G (property rental business)) that the principal company must provide in respect of each accounting period (see GREIT12160).

Time limit for making distribution

The 90% distribution requirement must be met in respect of each accounting period of the principal company of the group, and must be met by the filing date for the CTSA return for that accounting period.

Exceptions to the 90% requirement

In some circumstances, the principal company may distribute less than 90% of the tax-exempt profits and remain in the regime. These fall into four categories:

  • legal impediment to distribution (seeGREIT02055 and GREIT12130),
  • finally agreed measure of tax-exempt profits is higher than the amount returned (see GREIT07045),
  • Regulation 7 SI 2006/2864 (Breach of Condition) regulations is relied on (see GREIT07050), and
  • sufficient distributions are declared but not paid out to certain shareholders as a result of reasonable steps taken in connection with the 10% rule (see GREIT02125 and GREIT07045).