IFM29040 - Real Estate Investment Trust : Miscellaneous: indirect ownership of property: non-resident unit trusts

There is no single answer that applies to all non-resident unit trusts, and not even one for all unit trusts established in a particular location. The result depends on the nature of the deed establishing the trust as well as the laws of the jurisdiction under which the trust is set up. There are two broad alternatives: the entity is transparent for income, or it is not.

Transparent for income

Here, the unit holders are entitled to the income of the underlying assets as it arises. To the extent the income arises from property that meets the definition for a property rental business in CTA2010/S519, then the income will be treated as part of the unit holder’s property rental business income.

Others

The alternative is that unit holders are entitled to payments out of the trust at the discretion of the trustees/ managers. The payments made to unit holders, even though they may arise to the trustees as property income, will generally be an annual payment for UK tax purposes and arise to the residual business.

Gains

For periods beginning before 6 April 2019 the treatment of gains on a disposal of property by a unit trust is provided by TCGA1992/S99 for opaque funds and UK unit trust schemes and by TCGA1992/S103D for transparent funds. (see IFM12254)

Profit and gains received by the UK-REIT from a unit trust, relating to the proceeds of a property disposal by the unit trust, will be profits and gains of the residual business.

For periods beginning on or after 6 April 2019 an offshore collective investment vehicle transparent for income may elect for transparency for gains under TCGA1992/Sch5AAA/Part 3 (see CG73997P). If this is the case then the proceeds of disposal by the unit trust will be treated as the unit holder’s proceeds.

Which applies?

It is the responsibility of the unit holder to seek advice on the basis of applicable law, and to be prepared to share correspondence on the subject with HMRC if questions are asked.