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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: Financial Statements: G (property rental business) and G (residual): intra-group transactions

In drawing up the financial statements for G (property rental business) and G(residual), intra- group transactions are generally ignored (regulation 5(2) SI2006/2865). The exception is the part of the income, expense etc that relates to theinterests of a minority shareholder. The part that is ignored is that represented by thebeneficial interest in the company held by non- members of the group. For this purpose,the beneficial interest in the subsidiary is measured by reference to the beneficialentitlement to profits available for distribution to shareholders.

Intra-group finance

Subject to the minority holding point above, the interest paid by one member of thegroup to another member of the group is ignored both as an expense of the borrowingcompany and as income of the lending company in drawing up the financial statements for G(property rental business) and for G (residual). Similarly, the loan does not feature asan asset of the lending company for this purpose.

Note however this does not extend to the tax computations of the borrowing and lendingcompanies. To the extent it relates to property rental business, the interest is allowedas a deduction in arriving at the tax-exempt profits of the borrowing company, and isincluded in the taxable (residual) part of the company lending money.

In drawing up the financial statements for G (property rental business) and for G(residual), the value of shares in a subsidiary are not counted as assets of the holdingcompany, and dividends paid are not counted as income. Again this treatment does notextend to the tax computations of the holding company and the subsidiary.