IFM28055 - Real Estate Investment Trust : Distributions: attribution rules: leaving the regime and liquidations: CTA2010/S550 and S548(2) and (4)

Company or group ceases to be a UK-REIT

Even though a company or group is no longer a UK-REIT, the requirement to attribute distributions to property rental business profits and gains continues until an amount equal to total profits (income and gains) of the property rental business have been distributed as PID. CTA2010/S548(2) and (4) provides that the liability to tax on distributions of property rental business profits and gains applies to distributions by a post-cessation group or company. It is therefore necessary to continue to track the attribution of distributions until the full amount of property rental business profits and gains have been distributed.

The CTA2010/S530 requirement to distribute property rental business profits of the accounting period does not apply once the company has left the regime (it is a condition of remaining in the regime). Therefore the company (principal company of a Group REIT) need only attribute post-cessation distributions across Categories (b) to (e) – Categories (a) and (aa) are zero.

The company may if it chooses attribute as much as it can to (b) ‘income from taxable activities’, which will be more or less the entire income of post-REIT accounting periods. But to the extent the subsequent distributions exceed ‘income from taxable activities’, the distributions must be paid out as PID. To avoid prolonged record keeping, companies that have left the regime may prefer to pay out all the remaining profits and gains of the property rental business as PID as soon as practicable after leaving the regime.

Former principal company of Group REIT

For a company that was the principal company of a Group REIT, the continuing obligation to pay out distributions as PID is based on the amount of profits (income and gains) that arose from property rental business of companies that were members of the group when it was a UK-REIT.

Company leaving a Group REIT

Where a company leaves a Group REIT, the amount of any property rental business income or gains earned by the departing company remain as part of the amounts in Categories (a), (aa) (in the first year after the company leaves the group), (c) and (d). There is no reduction in the amounts in these categories on account of the company leaving the group. It is up to the group to ensure that sufficient value has been retained within the group to meet in particular the distribution requirement in the year after the company has left. As such, divesting itself of a subsidiary does not remove the obligation to distribute as PID the property rental business profits earned by that company when it was covered by Part 12 of CTA2010 as a member of a Group REIT.

Company liquidations

Where a company that has been a UK-REIT, or the principal company of a group REIT, appoints a liquidator, HMRC will maintain a close eye on the progress of the liquidation to ensure that all the profits and gains of the property rental business are distributed to shareholders as PID before agreeing to the company’s affairs being wound up.

Note that

· Appointment of a liquidator of a REIT subsidiary does not require a distribution of the reserves of that subsidiary to the ultimate shareholders of the REIT and

CTA2010/S548 refers to the distribution of profits or gains of UK members, or of the UK property rental business of non-UK members of the group, as shown in the financial statement under CTA2010/S532(2)(a); not to a distribution of a company (CTA2010/S1030). This means that distributions made in a winding up may come within CTA2010/S548.