IFM22071 | Real Estate Investment Trust : Conditions and Tests: Balance of business Conditions: Miscellaneous items of profits

Entities that are not members of the ‘group’

Members of the group (i.e. 75% / effective 51% subsidiaries of the principal company) may have interests in other corporate and non-corporate entities. The treatment of the group members’ interests in these other entities (and, where appropriate, their underlying profit) flows from how the interests are dealt with in the Financial Statements (see IFM22340).

For interests in transparent and other non-transparent entities, where the interest is 20% or less then the income falls into the residual business. If the interest if more than 20% then the income and gains are consolidated to the extent of the holding. (see IFM29030)

For transparent entities the treatment of income and gains of indirectly held property is considered at IFM29015 and IFM29030.

Property Income Distributions received

A property income distribution received by the REIT from another UK REIT (CTA2010/S549A (6) or (8)) is to be treated as profits of the property rental business. (CTA2010/531(4A) and (4B))

Overage Payments

A contract for sale of the land to a developer may provide for consideration that is contingent on the successful development of the land, known as overage payments. The right to overage payments is an asset in its own right and the transactions in UK land legislation may apply (CTA2010/Part 8ZB ) where the right to overage is unascertainable at the date of sale, to tax the payments as deemed income profits. However the deemed treatment as income profits applies for transactions in land purposes only.

Whether overage payments are included as income profits for balance of business condition A depends on the accounting treatment under IAS. If under IAS the receipt is capital it is excluded by CTA2010/S531(4)(a) as a realised gain on property. If the receipt is revenue then consider whether CTA2010/S531(4(c), items outside the ordinary course of business having regard to past transactions, applies to exclude the item from the test. (see IFM22072)

Funds awaiting re-investment

Although cash may count as an asset of the property rental business for Balance of business test condition B (see IFM29005), interest or other income arising on the cash does not form part of the profits of the property rental business. Such income is included in the residual business.