CFM97715 - Interest restriction: property and REITs: loan relationships amounts of the property rental business

TIOPA10/S452(4)

The REITs provisions modify the treatment of loan relationships and derivative contracts amounts relating to the property rental business (PRB). See IFM24000+

Normally, in computing property business profits subject to tax under CTA09/PT4, amounts relating to loan relationships and derivative contracts of a property business would be left out of account and dealt with as non-trading loan relationships amounts (CTA10/S211). However, for the purposes of computing PRB profits that are exempted from CT, this exclusion is set aside so that amounts relating to the following are deducted in computing the exempted profits:

• a loan relationship so far as it relates to PRB;
• a hedging derivative contract so far as it relates to PRB; or
• embedded derivatives so far as the host contract is entered into for the purposes of PRB.

This follows from CTA10/S534(1) or (2), S534(5) and S599.

But, solely for the purpose of determining the amounts taken into account in applying the CIR, this special approach is set aside, and amounts are treated as non-trading loan relationship amounts (CTA09/S301) rather than amounts to be taken into account as PRB profits (TIOPA10/S452(4)).

Once any CIR disallowances of the CIR worldwide group have been calculated, allocated, and applied, CTA10/S599 applies, bringing loan relationships within the exempt PRB profit calculation. This ensures that the amounts adjusted under CIR are taken into account in computing PRB profits. This in turn feeds into the PID that is required to be paid, see IFM22050+.