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HMRC internal manual

Investment Funds Manual

Real Estate Investment Trust : Conditions And Tests: Company Conditions: Condition D: Institutional Investors: CTA2010/S528(4A)

Condition D (CTA2010/D528) is that the company/ principal company must not be ‘close’ or it is ‘close’ only because it has a participator that is an institutional investor. The list of institutional investors is given at CTA2010/S528(4A) and includes:

(a)        the trustee or manager of—

(i)         an authorised unit trust scheme (as defined in FISMA2000/S237(3) ), or

(ii)        a unit trust scheme (as defined in FISMA 2000/S237(1) which is authorised under the law of a territory outside the United Kingdom in a way which makes it, under that law, the equivalent of an authorised unit trust scheme (as defined in FISMA 2000/S237(3));

(b)        a company—

(i)         which is an open-ended investment company (as defined in FISMA 2000/S236(1)) incorporated by virtue of regulations under FISMA 2000/S262, or

(ii)        which is incorporated under the law of a territory outside the United Kingdom and is, under that law, the equivalent of an open-ended investment company (as defined in FISMA 2000/S236(1));

(c)        a person acting on behalf of a limited partnership which is a collective investment scheme (as defined in FISMA 2000/S235 );

(d)        the trustee or manager of a pension scheme (as defined in FA2004/S150(1));

(e)        a person acting in the course of a long-term insurance business (that is, the activity of effecting or carrying out contracts of long-term insurance within the meaning of the Financial Services and Markets (Regulated Activities) Order 2001 (S.I. 2001/544)) who—

(i)         is authorised under FISMA 2000 to carry on such business, or

(ii)        has an equivalent authorisation under the law of a territory outside the United Kingdom to carry on such business;

(f)         a charity; (see FA2010/Sch6 Part 1 for the definition of a charity)

(g)        a person registered under any of the following provisions (which provide for registers of social landlords)—

(i)         in England, section 111 of the Housing and Regeneration Act 2008;

(ii)        in Scotland, section 20 of the Housing (Scotland) Act 2010 (asp 17);

(iii)       in Wales, section 1 of the Housing Act 1996;

(iv)       in Northern Ireland, Article 14 of the Housing (Northern Ireland) Order 1992 (S.I. 1992/1725 (N.I. 15));

(h)        a person who cannot be liable for corporation tax or income tax (as relevant) on the ground of sovereign immunity;

[(i)        a UK REIT;

(j)         a person who is resident in a territory outside the United Kingdom in accordance with the law of that territory relating to taxation and is, under the law of that territory, the equivalent of a UK REIT (see below)

The aim of the UK REIT regime is to offer investors greater access to property investment in a more liquid form. The intention is that UK REITs are widely held entities. On a look through basis that principle should be maintained by the institutional investors. The aim of the institutional investors list is to include widely held entities only, preserving the non-close status of the REIT.

For a company institutional investor the normal non-close company definition should apply.

For a limited partnership collective investment scheme the partners, if they held the UK-REIT shares direct, would not confer close company status on the UK-REIT company. For this purpose, when considering the diversity of a holding in a CISLP we do not attribute the rights of the partners purely on the basis that they are partners in the CISLP.

For a unit trust or open ended investment company, there should be genuine diversity of ownership and, for this purpose, SI2009/3001 Offshore Funds (Tax) Regulations 2009 Reg 75 conditions A to C should be met.

Overseas equivalent of UK REIT

To determine whether an overseas entity is the equivalent of a UK REIT we start with the premise of how a REIT (generally) is described in the OECD Commentary to Article 10 of the Model Tax Convention.  That sets out the following broad characteristics –

1.     A widely held company, trust or contractual or fiduciary arrangement, that

2.     derives its income primarily from long-term investment in immovable property,

3.     distributes most of that income annually, and

4.     does not pay income tax on the income related to immovable property that is so distributed.

An equivalent of a UK REIT will have these fundamental characteristics and further:

•       there must be provision in the law of the territory where the entity was resident which broadly corresponds to Part 12 CTA 2010 ,and

•        the entity must qualify for relief under those provisions similar to the relief that a company in the UK which qualified as a UK REIT would qualify for.

HM Treasury has the power to change the list of institutional investors in regulations.

There is no whitelist for overseas equivalents of UK REITs. Whether the entity qualifies will depend on the existing REIT regime rules of the overseas jurisdiction. HMRC has given confirmation of equivalence to a UK REIT for Australian REITs (based on the Australian rules in place at 24 November 2015) and USA Equity REITs (based on the USA rules in place at 22 June 2015).

It is important to note that the test for an overseas equivalent of a UK REIT for the purposes of CTA2010/S528(4A)(j) is not the same as the test for foreign equivalents for the purposes of Regulation 69G of the Authorised Investment Funds (Tax) regulations 2006 (SI 2006/964).