IFM28005 - Real Estate Investment Trust : Distributions: general

One of the effects of the UK-REIT regime is that it moves the point of taxation from the vehicle to the investor, so far as profits of the property rental business are concerned. It does this by exempting the profits (income and gains) of the property rental business from tax, and then taxing the distributions of those profits when they are returned to investors as dividends.

The distributions that are paid out of the property rental business profits and gains are payable under deduction of income tax at the basic rate.

Property Income Distributions (PIDs)

Distributions that are paid out of the property rental business profits and gains are referred to in the guidance (but not in the legislation) as property income distributions or PIDs. For these purposes, the property rental business profits are the profits of the property rental business as calculated for tax purposes. A PID can also include distributions of capital gains on disposals of assets involved in the property rental business and, for accounting periods beginning on or after 6 April 2019, on disposals of UK property rich companies (at least 75% of company value is derived from UK land). The property income distributions are found in categories (a), (aa), (c) or (d) in CTA2010/S550 – see IFM28010).

The PID can be paid in respect of preference shares or ordinary shares.

In the hands of investors, PIDs are generally taxable as income from a property business. Credit is given for the amount of income tax deducted from the PID against tax due on them. If no tax is payable, the tax deducted on payment is generally repayable.

More detail on the taxation of PIDs in the hands of shareholders can be found at IFM28300.

For a Group REIT, only the principal company can pay out PIDs.

Other dividends and distributions (non-PID dividends)

A UK-REIT may also carry out activities that give rise to taxable profits and gains. Distributions out of profits that are within the charge to tax are treated in the same way as normal company dividends. Note that this also includes book-tax adjustments between accounting profits of the property rental business and the tax measure of those profits.

Non-PID dividends are those attributed to Categories (b) and (e) in CTA2010/S550 – see IFM28010).

The company pays these out and handles the non-PID dividends administratively in exactly the same way as normal company dividends. Again, the non-PID dividend can be in respect of preference shares or ordinary shares.

For a Group REIT, all the dividends and any other kind of payment made by a subsidiary company that comes within the definition of distribution as used in CTA2010/Part 23 are treated in the same way as distributions made by normal companies.

For shareholders within the charge to CT, these non-PID dividends are generally exempt from CT under CTA2009/Part 9A. For income tax payers, the non-PID dividends are taxable as savings income in the same way as normal dividends from a UK company (see IFM28300).