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HMRC internal manual

Guidance on Real Estate Investment Trusts

Group conditions and rules: Financial statements: basics


A condition of a group being a UK-REIT is that the principal company of the groupundertakes to provide three sets of financial statements in relation to the group’sactivities for each accounting period of the principal company (paragraph 5(2) Schedule 17FA 2006). The detail of what the statements must contain is set out in the FinancialStatement regulations (SI 2006/2865).

Time limit for filing

The principal company must supply these financial statements by the CTSA filing datefor the accounting period for which relate (regulation 13 SI 2006/2865).

Types of financial statement required

The outline of what is to be shown in each of these statements is set out in paragraph31 Schedule 17, with more detailed requirements set out in regulations (SI 2006/2865).

The financial statements required are for:

  • G (property rental business)
  • G (residual), and
  • the UK business of G (property rental business) (i.e. G (tax-exempt)).

The first two statements are similar to group consolidated accounts, where intra-grouptransactions are ignored. They use International Accounting Standards (IAS) to measureincome, expenses and values (paragraph 31(3)). For more detail, see GREIT12115.

The third financial statement, for G (tax-exempt), is based on income and gains asmeasured for tax purposes and is the aggregate of the tax-exempt profits of each member ofthe group. Intra-group transactions are not ignored in this type offinancial statement. For more detail, see GREIT12160.

Use to which financial statements are put

The financial statements for G (property rental business) and G (residual) are used totest whether the Balance of Business conditions in section 108 FA 2006, as modified byparagraph 7 Schedule 17, have been met. The are also used in determining whether theinterest cover test in section 115 FA 2006, as modified by paragraph 14 Schedule 17, ismet.

The financial statement for G (tax-exempt) is used in determining whether the interestcover test in section 115 FA 2006, as modified by paragraph 14 Schedule 17, is met. It isalso used to determine the minimum level of distribution required to meet Condition3 inparagraph 6(4) Schedule 17, and in applying the attribution rules in section 123 FA 2006,to determine the amount of distributions that must be paid under deduction of basic rateincome tax.