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HMRC internal manual

Guidance on Real Estate Investment Trusts

Group conditions and rules: Financial Statements: UK business of G (property rental business) (G (tax-exempt))


The financial statements for the UK business of G (property rental business) are alsoreferred to in guidance as those for G (tax-exempt). They are used in determining whetherthe interest cover test in section 115 FA 2006, as modified by paragraph 14 Schedule 17,is met. It is also used to determine the minimum level of distribution required to meet90% distribution condition in paragraph 6(4) Schedule 17, and in applying the attributionrules in section 123 FA 2006, to determine the amount of distributions that must be paidunder deduction of basic rate income tax.

This financial statement shows the aggregate of the profits of the tax-exempt business ofeach member of the group. Unlike the financial statements for G (property rental business)and G (residual), it does not exclude intra-group transactions. For an example, see GREIT12165.


The financial statement for the UK business of G (property rental business) is drawn upusing tax-based calculations of profits, as set out in section 120 FA 2006 (paragraph31(4) Schedule 17 FA 2006). They will therefore include the taxable profits of groupmembers as submitted to HMRC on CTSA returns. If enquiries into those returns (orcorrections made within 12 months of the filing date) alter the aggregate tax-exemptbusiness income, the principal company may need to declare additional PID to met the 90%distribution requirement. Only if the increased profits make a material difference to thefigures will it be necessary to submit amended financial statements for G (tax-exempt) toreflect the changes.

Subsidiaries that are not wholly owned

Where the group’s interest in a subsidiary is less than 100%, the financial statementsexclude a proportion of the profits etc represented by the beneficial interest in thecompany held by non-members of the group (paragraph 31(5) and (6) Schedule 17 FA 2006).For this purpose, the beneficial interest in the subsidiary is measured by reference tothe beneficial entitlement to profits available for distribution to shareholders.

Intra-group transactions, balances etc

In drawing up the financial statement for G (tax-exempt), intra-group transactions are notignored. For example, Group REIT member G1 lends money to Group REIT member G2.To the extent the loan relates to property rental business of G2, the interest is allowedas a deduction in arriving at the tax-exempt profits of G2, and is included in the taxable(residual) part of G1.

Expenses - amounts to be shown separately

As part of the process for deciding if the interest cover test is met, the financialstatement for G (tax-exempt) has to show separately capital allowances and financing costs(regulation 5(5) SI 2006/2866). ‘Financing costs’ are defined in section 115(4) FA 2006and include finance leasing costs as well as interest – see GREIT02200for more detail. For an example of how they are calculated, see GREIT12165.