IFM22100 - Real Estate Investment Trust : Conditions and tests: maximum shareholding: CTA2010/S551- S554

Background

One aim of the UK-REIT rules is to move the point of taxation from the investment vehicle to individual investors. To achieve this PIDs are paid under deduction of withholding tax and taxed as income from property in the investor’s hands.

Double Taxation Agreements (DTAs) often allow shareholders holding 10% or more of the capital of a company to receive distributions without suffering any withholding tax, or only being liable to a reduced rate of withholding tax. Absent special provisions in the DTA, this means that shareholders holding 10% or more of the capital of a UK REIT will be able to reclaim all or a large proportion of the UK withholding tax on PIDs.

The ‘holder of excessive rights’ (HoERs) rules (CTA2010/s551- S554) counter this risk by imposing a tax charge on the UK- REIT if it makes a distribution to a holder of excessive rights (see IFM22105). These rules encourage the REIT to ensure that distributions are not made to HoERs. Certain reasonable steps can be taken to avoid this (see IFM22125 to IFM22150).