IFM22050 | Real Estate Investment Trust : Conditions and Tests: Distribution Condition: General: CTA2010/S530

The condition requiring the REIT company, or principal company of the group REIT, to distribute profits from the property rental business is set out in -CTA2010/S530.

Distribution requirements

To meet this condition the company, or principal company of the group REIT, must distribute as property income dividends (PIDs) 100% of PIDs received from other UK REITs and at least 90% of the rest of the company’s or group’s UK property rental profits. There is no requirement to distribute capital gains which can be retained within the REIT.

The property rental business is defined in CTA2010/S519 (see IFM21020).

For a single company UK REIT the profits of property rental business are calculated in accordance with CTA2010/S599. (CTA2010/S530(4A)).

For a group UK REIT the profits of the property rental business are the total profits for each member of the group, calculated in accordance with CTA2010/S599 as shown in the financial statement under CTA2010/S532(2)(b). Where the result for a group member is a loss this would be nil for the purposes of calculating the sum of profits of members of the group (CTA2010/S530(2).) However the profits under CTA2010/S599 are calculated in the same way as profits of a UK property business for the purposes of the charge to tax under Chapter 3 of Part 4 of CTA 2009. It follows that a loss in one group member may be set off against the profits of another group member by a group relief claim (CTA2010/Part5). The set off of losses will be shown by the financial statements, there is no requirement for formal group relief claims to be made.

There are no distribution requirements for subsidiaries.

The distribution requirement must be met in respect of each accounting period of the company or principal company, and must be met by the filing date for the CTSA return for that accounting period.

The distribution requirement can be met by cash dividend or the issue of stock dividends (see IFM28005).

Failing the Distribution Condition

In some circumstances, the REIT may distribute less than 90% of the tax-exempt profits and suffer no penalties. These fall into three categories:

· legal impediment to distribution (see IFM22055),

· finally agreed measure of property rental profits is higher than the amount returned (see IFM27045), and

· sufficient distributions are declared but not paid out to holders of excessive rights as a result of reasonable steps taken in connection with the 10% rule (see IFM22125).

It is also possible that a REIT that issues stock dividends may not meet the distribution requirement in CTA2010/S530 in the circumstance where stock dividends are issued and the market value is used rather than the cash equivalent. In this case the time limit for meeting the distribution requirement is extended by 6 months. See IFM28005 for information on stock dividends and when market value is to be used.

For consequences of breaching the distribution condition see IFM27045.