IFM22150 | Real Estate Investment Trust : Conditions and Tests: maximum shareholding: reasonable steps: retained distributions: interaction with other rules

If the company, (principal company in the case of a Group REIT) , has taken reasonable steps to prevent paying a dividend to a holder of excessive rights (HoER), then some or all of the additional charge will not be imposed. This page considers the interaction of this provision with other rules.

Distribution requirement

A company, (principal company in the case of a Group REIT) may withhold payment of some or all of a distribution as a result of reasonable steps taken to avoid a charge under CTA2010/S551.

If so, the amount withheld is treated as having being paid for the purposes of meeting the distribution requirement (CTA2010/S530). This means that the distribution requirement is met by reference to the amount of distribution declared, even if there are delays in paying some of it to beneficial owners because of the 10% shareholding rule.

Requirement to account for tax on property income distributions

The regulations in SI 2006/2867 that apply to the deduction and accounting to HMRC of tax from payments of distributions out of the profits of the property rental business apply equally to distributions that are withheld (ITA2007/S973). Other than where the distribution is paid to the types of person listed in SI2006/2867/Reg7(4) (a trustee of a registered pension scheme or the manager of an ISA, PEP or CTF), the requirement to deduct is by reference to the nature of the person beneficially entitled to the distribution .

As the company is unlikely to know who will eventually be beneficially entitled to the distribution when it can be released, the company should deduct tax on payment of retained distributions into trust, and account to HMRC for the tax in the normal way. When the distribution can be released, and the beneficial recipient is entitled to gross payment, the company should submit a revised CT61(Z) for the return period when the distribution was originally paid into trust to reflect this.

The date withheld amounts are treated as paid is the same date that applies to the distributions that are paid out to shareholders (i.e. when they due and payable – CTA2010/S1168).