IFM22110 | Real Estate Investment Trust : Conditions and Tests: maximum shareholding: when and how a holder of excessive rights (HoER) charge arises: CTA2010/S551

A HoER charge is imposed only if the UK-REIT company (principal company in the case of a Group REIT) makes a distribution to or in respect of a HoER, that is not an excluded holder, as defined in CTA2010/S553 (see IFM22105).

Situations when the charge does not apply

. The charge will not apply merely because a shareholder has a stake in the company of 10% or more. The charge only arises where a PID is paid to that shareholder

. Neither is the tax charge applied if the person beneficially entitled to the distribution is not also a HoER.

. The charge will not apply if the company has taken reasonable steps to prevent the dividend being paid to a HoER (see IFM22125 to IFM22150).

. The charge will also not apply if the HoER is an excluded holder (see IFM22105).

Examples to illustrate when a charge might arise are set out in IFM22113.

How the HoER charge is collected

The charge is levied on the distributor (i.e. UK-REIT company or principal company in the case of a Group REIT). The company is deemed to have received a notional amount of income in the period in which any distribution is paid to a HoER, which is treated as profits of residual business: CTA10/S551.

The amount of income brought into charge is defined in CTA2010/S552 and is designed to recover as much tax from the UK-REIT as the HoER could potentially claim under a DTA. This is dealt with in more detail in IFM22120.

In the case of a Group REIT, the HoER rules only apply to distributions made to shareholders by the principal company. There are no restrictions on ownership of shares in subsidiary members of the group and so no HoER charge arises if a distribution is paid by a subsidiary of the Group REIT to a minority shareholder (with an interest of 10% or more in the subsidiary).