IFM22100 | Real Estate Investment Trust : Conditions and tests: maximum shareholding: CTA2010/S551- S554A

Background

One aim of the UK-REIT rules is to move the point of taxation from the investment vehicle to individual investors. To achieve this PIDs are normally paid under deduction of withholding tax (except where paid to certain investors who are to be paid gross - see IFM28125) and taxed as income from property in the investor’s hands.

Double Taxation Agreements (DTAs) often allow shareholders holding 10% or more of the capital of a company beneficial treaty rates of tax on dividends. Where there are no specific provisions for distributions from REITs in those DTA's, this means that certain shareholders holding 10% or more of the capital of a UK REIT may be able to reclaim all or a large proportion of the UK withholding tax on PIDs.

The ‘holder of excessive rights’ (HoERs) rules (CTA2010/s551- S554A) counter this risk of reduced (or no) tax being paid on a PID by imposing a tax charge on a UK- REIT if it makes a distribution to a holder of excessive rights that is not an “excluded holder” (see IFM22105). These rules encourage REIT's to ensure that distributions are not made to HoERs. Certain reasonable steps can be taken to avoid this charge (see IFM22125 to IFM22150).