IFM22300 | Real Estate Investment Trust : Group conditions and rules : Financial statements: basics : CTA2010/S532 - S533

A condition of a group being a UK-REIT is that the principal company of the group is required to prepare and submit three sets of financial statements in relation to the group's activities for each accounting period of the principal company (CTA2010/S527(2)(e) and CTA2010/S532). The detail of what the statements must contain is set out in CTA2010/S533 and in the Financial Statement regulations (SI 2006/2865).

See also IFM22305 for additional financial statement requirements where a UK-REIT group/company is involved in a joint venture company/group and a look-through REIT joint venture notice is in place (see IFM30027).

Time limit for filing

The principal company must supply these financial statements by the company tax return filing date for the relevant accounting period to which they relate (SI 2006/2865 Reg 13).

Types of financial statement required

The outline of what is to be shown in each of these statements is set out in CTA2010/S533, with more detailed requirements set out in regulations (SI 2006/2865).

The financial statements required are in relation to:

· The group’s property rental business for the period. (S532(2)(a))

· The group’s residual business for the period. (S532(2)(c))

· The group's tax-exempt property rental business in the United Kingdom for the period (S532(2)(b))

The first two statements are similar to group consolidated accounts, where intra-group transactions are ignored. They use International Accounting Standards (IAS) to measure income, expenses and values (CTA2010/S533). For more detail, see IFM22315.

The third financial statement is based on income and gains as measured for tax purposes and shows the aggregate of the profits of the UK property rental business of each member of the group. The UK property rental business consists of all the property rental business of UK members of the group and the UK property rental business of other members. Intra-group transactions are not ignored in this type of financial statement. For more detail, see IFM22360.

For accounting periods beginning on or after 1 April 2022, groups may be able to submit just a single set of financial statements (a) and (c) for the group as a whole. For accounting periods beginning before 1 April 2022, the required information always had to be specified in relation to each member of the group.

See IFM22303 for the circumstances under which, for accounting periods beginning on or after 1 April 2022, group financial statements (a) and (c) must also specify matters relating to each member of the group.

Use to which financial statements are put

The financial statements are fundamental to determining compliance with REIT tests. The first two (CTA2010/S532(2)(a) and (c)) financial statements are used to test whether the Balance of Business conditions in CTA2010/S531 (see IFM22065) have been met. They are also used in determining whether the financing cost ratio test in CTA2010/S543 is met.

The third financial statement (CTA2010/S532(2)(b)) is similarly used in determining whether the financing cost ratio test in CTA2010/S543 is met. It is also used to determine the minimum level of distribution required to meet the condition in CTA2010/S530 (IFM22050) as to distribution of profits and in applying the attribution rules in CTA2010/S550 (IFM28010) to determine the amount of distributions that must be paid under deduction of basic rate income tax.

There is no prescribed format for financial statements. However HMRC has developed a REIT financial statement tool which will calculate whether the tests above have been met and can be submitted electronically directly to HMRC. This tool will be sent to you automatically once your application to join the REIT regime has been accepted.