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HMRC internal manual

Investment Funds Manual

Real Estate Investment Trust : Distributions: attribution rules: category (aa) – 90% mandatory distribution: CTA2010/S550(2)(aa)


90% Requirement

Distributions made by the company to meet the mandatory 90% distribution requirement are earmarked as meeting the Category (aa) requirement.  This part of the distribution is a PID, paid under deduction of income tax at basic rate (other than for gross payment cases as set out in SI2006/2867/ regulation 7). The amount attributed to Category (aa) is set at 90% of property rental business profits and should be no more or less than this. It is not possible to attribute distributions to Category (aa) in excess of the 90% and carry forward excess amounts under this category.

Where the company breaches the distribution requirement and incurs a charge under CTA2010/S564 then the amount charged is treated as profits of the residual business (see IFM27050). This effectively re-characterises an amount of property rental business profits as residual business profits. It follows that attribution of a distribution from these profits would be to category (b).


Group REITs

The amount the principal company of a Group REIT is required to pay out to meet the mandatory 90% distribution is based on the measure of income that, across the various members of the group, has been exempted from tax as a consequence of the group being a UK-REIT.  In earmarking the distributable reserves of the principal company therefore it is not by reference to the nature of the profits as they arise to that company (which will often be as dividends paid up from subsidiaries that carry on property rental business), but by reference to the amount of the various kinds of profit that arise to all the members of the group.   

Interaction with company law and commercial concepts

When a company makes a distribution, it is paid out of distributable reserves as at a certain date and is usually declared in respect of the profits of a particular period of account.  However, when attributing a portion of the distribution to Category (aa), it is not necessary to preserve the accounting link with a particular period. 

The requirement is that 90% of the property rental business profits of an accounting period (as defined for CT purposes) is distributed as a PID by the CTSA filing date for that period.  It is equally acceptable to HMRC to earmark part of each distribution made during an accounting period and in the 12 months up to the filing date for that period (example 1(2) in IFM28023), as it is to earmark part or all of only the interim or final distributions that are declared in respect of the profits of the period of account (example 1(1)) in IFM28023), or indeed any combination.   

For the interaction between Category (aa) attribution and interim distributions, see IFM28045.