IFM22110 - Real Estate Investment Trust : Conditions and Tests: maximum shareholding: when and how a holder of excessive rights (HoER) charge arises: CTA2010/S551

A HoER charge is imposed only if the UK-REIT company (principal company in the case of a Group REIT) makes a distribution to or in respect of a HoER, , as defined in CTA2010/S553 (see IFM22105).

Situations when the charge does not apply

· The charge is not triggered merely because a shareholder has a stake in the company of 10% or more.

· Neither is the tax charge triggered if the person beneficially entitled to the distribution is not also a HoER.

· The charge can be avoided if the company has taken reasonable steps to prevent the dividend being paid to a HoER.

Examples to illustrate when a charge might arise are set out in IFM22113.

How the HoER charge is collected

The charge is levied on the distributor (i.e. UK-REIT company or principal company). The company is deemed to have received a notional amount of income in the period in which any distribution is paid to a HoER.

The amount of income brought into charge is defined in CTA2010/S552 and is designed to recover as much tax from the UK-REIT as the HoER could potentially claim under a DTA. This is dealt with in more detail in IFM22120.

There are no restrictions on ownership of shares in subsidiary members of the group. No HoER charge arises if a distribution is paid in respect of a company which has an interest of 10% or more in the subsidiary.

‘Reasonable steps’ get out

If the company has taken reasonable steps to prevent paying a distribution to, or in respect of, a HoER, then the HoER charge will not be imposed. See IFM22125 to IFM22150 for what HMRC may accept as reasonable steps.