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HMRC internal manual

Investment Funds Manual

Real Estate Investment Trust : Distributions: attribution rules: category (a) and (aa) – mandatory distribution: examples

Facts for examples 

C becomes a UK-REIT on 1 January 2017, has no distributable reserves brought forward once it has paid out the final dividend for 2016 (which was all paid as a non-PID).  For accounting period ending 31 December 2017, the income of its property rental business is 1,000, the same as the accounting measure of income profit, and incudes 100 PID received from shares held in another UK-REIT.  The gains as measured for TCGA purposes on disposals of properties involved in the property rental business, the relevant non-chargeable gains, are 100 and equal to the gains measured for accounting profits.  Taxable income from other activities is 130 and chargeable gains from other activities are 70.  The company’s income accrues evenly over the year.  Distributable reserves in respect of 2017 are 1,300. 

Example 1(1)

C does not make an interim distribution for first half 2017 and in March 2018, declares a final distribution in respect of 2017 of 950.  C does not make any further distributions in 2018.  Category (a) is 100 and (aa) is 90% of 900 = 810, the total PID 910 is payable under deduction of basic rate tax.  (see IFM28028 for the treatment of the remaining £40)

Example 1(2)

Instead of a single dividend in respect of 2017 profits, C pays an interim distribution of 300 in August 2017, and a final distribution in March 2018 of 650.  C estimates that the property rental business income of the first half of 2017 is 500, and decides to play safe and pay the entire interim distribution as PID.  C does not plan to pay an interim distribution during 2018.

To meet the mandatory distribution in respect of 2017, of the distributions paid out from 1 January 2017 to 31 December 2018, Category (a) is 100 and (aa) is 90% of 900 = 810.  C attributes the entire 300 interim distribution, and 610 of the final distribution between categories (a) and (aa).  

To avoid paying a small amount as non-PID, C pays the remaining 40 as PID as well.  This 40 is attributed to Category (c) in respect of 2017 profits.