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HMRC internal manual

Savings and Investment Manual

Dividends and other company distributions: UK Real Estate Investment Trusts: introduction

UK REIT property income distributions are taxed as property income

Part 12 of the Corporation Tax Act 2010 provides for a special tax regime for ‘Real Estate Investment Trusts’ (UK-REITs). A UK-REIT is either a company or group that carries on a property rental business, and meets a number of conditions. The Real Estate Investment Trust Manual (GREIT) explains the taxation of UK-REITs in detail. This section of the Savings and Investment Manual explains the tax treatment of the investor.

Broadly, the special tax regime is available to companies or groups whose business is at least 75% property rental. Where the UK-REIT satisfies the relevant conditions, its rental income is exempt from corporation tax, as are capital gains on the disposal of rental properties. One of the conditions is that the UK-REIT must distribute 90% of its rental profits from its tax-exempt property rental business, and pay these distributions under deduction of basic rate income tax (other than for gross payment cases - see GREIT08025 SAIM20000).

These are referred to as property income distributions (or PID) in this guidance, although the term and abbreviation is not in the legislation.

UK-REITs were introduced with the objective of enhancing the liquidity of the property investment sector, and providing retail investors with access to a broader property portfolio than is the case through direct purchase of an investment property. Shares in UK-REITs are freely tradable on the stock market and thus obviate the need to buy and sell property directly.

The UK-REIT regime provides a collective investment vehicle (see SAIM6000 onwards for more on collective investment schemes) for property investment where the returns received by investors broadly mirror the treatment of direct holding in property. This means that for UK tax purposes, the relevant profits are not taxable within the vehicle, and the property income distributions are taxed as UK property income in the hands of the shareholder.

If other profits are distributed, these will have the tax treatment of a normal dividend.

The shares remain subject to capital gains tax in the usual way. See CG50200.