IFM28070 - Real Estate Investment Trust : Distributions: administration: reconciliations: SI2006/2867

At the end of each accounting period of the company (principal company of a Group REIT), the company must provide a reconciliation showing how distributions made in the period have been attributed between the six categories in CTA2010/S550 (see IFM28010 onwards for attribution rules). The reconciliation should accompany any quarterly return for the period ending on the last day of the accounting period i.e. within 14 days of the end of the accounting period (SI2006/2867/reg4(6)). If no distributions were made in that final return period, the company would not normally send in a return. In this case, it is sufficient to send the reconciliation for the accounting period directly to the tax office that deals with the company.

To enable the company to prepare accurately the reconciliation it is likely that the company will need to calculate

· distributable reserves allocated to the relevant categories as at the end of the previous accounting period (once the first accounting period as a UK-REIT has passed, this will be the closing balances shown on the reconciliation for the previous year);

· any adjustments to the brought forward amounts, arising for example from revisions to estimates of taxable profits / final determination of profits for the prior year;

· amounts of any interim and final distributions paid in the accounting period just finished, allocated to the relevant categories for the current and previous accounting period.

When submitting the reconciliation, the company does not need to establish profits for the accounting period just finished, or to prepare tax computations for that accounting period. It may, however, choose to include estimates of the current year profits in the reconciliation if it wishes.

The reconciliation may include negative balances where the income of the year has not been included in the reconciliation but dividends have been attributed to anticipated income for the year.

PIDs

Category (aa) may be made up of contributions to meeting the 90% distribution requirement for the accounting period in which the distribution was made and for the accounting period(s) that ended within the previous 12 months (see Example 1(2) at IFM28023). Where this is the case, the company may want to show the split between the accounting periods in the reconciliation.

Non-PIDs

Two of the five categories can include amounts that relate to income and gains that arose before the company joined the regime (categories (b) and (e) of section 550). The reconciliation for the first accounting period that the company is within the regime will have as its starting point (as opening balances) distributable reserves as at the date the company joined the regime.

Companies may take a pragmatic approach to allocating the total amount between (b) ‘income from taxable activities’ and (e) ‘other’. Although allocating more to the taxable income category gives a bigger cushion for paying out pre-entry profits as normal dividends post-entry, distributions attributable to either category are payable as normal dividends. Once the company has allocated its existing reserves as part of the reconciliation at the end of the first accounting period as a UK-REIT, the company cannot alter the allocation. There is however, no obligation to distinguish between pre-entry and post-entry amounts in (b) and (e) thereafter.

See IFM28085 and IFM28095 for examples of the type of reconciliation required.

Note that the requirement to make quarterly returns and to provide annual reconciliations continues to apply to a former UK-REIT (or to the principal company of a former Group-REIT) until all property rental business profits and gains have been distributed as PID.