IFM22325 | Real Estate Investment Trust : Group conditions and rules: Financial Statements: property rental business and residual: intra-group transactions SI2006/2865/Regulation (5)

In drawing up the financial statements for the property rental business and residual business, intra-group transactions are generally ignored (SI 2006/2865 Reg 5(2)). The exception is the part of the income, expense etc that relates to the interests of a minority shareholder. The part that is ignored is that represented by the beneficial interest in the company held by non-members of the group. For this purpose, the beneficial interest in the subsidiary is measured by reference to the beneficial entitlement to profits available for distribution to shareholders.

Intra-group finance

Subject to the minority holding point above, the interest paid by one member of the group to another member of the group is ignored both as an expense of the borrowing company and as income of the lending company in drawing up the financial statements for the property rental business and for residual business. Similarly, the loan does not feature as an asset of the lending company for this purpose.

Note however this does not extend to the tax computations of the borrowing and lending companies. To the extent it relates to property rental business, the interest is allowed as a deduction in arriving at the tax-exempt profits of the borrowing company, and is included in the taxable (residual) part of the company lending money.

In drawing up the financial statements for the property rental business and for residual, the value of shares in a subsidiary are not counted as assets of the holding company, and dividends paid are not counted as income. Again this treatment does not extend to the tax computations of the holding company and the subsidiary.