SolvedIFM27050 | Real Estate Investment Trust : Breaches of conditions: Distribution Condition: tax charge for failure: CTA2010/S564 – S565
From HM Revenue & Customs · Investment Funds Manual
Where the distribution condition has not been met, the company (principal company in the case of a Group REIT) is deemed to have received an amount of other chargeable income.
The income arises to the residual business. No expenses, losses, deficits etc can be used to reduce the amount of income brought into charge (CTA2010/S564(9)).
When the charge arises
The income is brought into charge as residual business income in the accounting period to which the failure relates. For example, company C (a UK-REIT) has property rental business income for the accounting period ending 31 December 2016 of 1,000. By the filing date 31 December 2017, C has paid out only 500 as a PID. The other chargeable income will arise to C (residual) on 31 December 2016, and C must make an amended CT return to include the charge in the taxable profits of the accounting period ending 31 December 2016.
Amount of income brought into charge
The amount of the charge is set out in CTA2010/S565 and is
P – D
where
P is 90% of the profits of the UK property rental business, and
D is the amount the company actually distributed by the CTSA filing date for the period.
In the above example, the amount of deemed income to be charged to tax in the residual business would be 400.
See [Where the distribution condition has not been met, the company (principal company in the case of a Group REIT) is deemed to have received an amount of other chargeable income.
The income arises to the residual business. No expenses, losses, deficits etc can be used to reduce the amount of income brought into charge (CTA2010/S564(9)).
When the charge arises
The income is brought into charge as residual business income in the accounting period to which the failure relates. For example, company C (a UK-REIT) has property rental business income for the accounting period ending 31 December 2016 of 1,000. By the filing date 31 December 2017, C has paid out only 500 as a PID. The other chargeable income will arise to C (residual) on 31 December 2016, and C must make an amended CT return to include the charge in the taxable profits of the accounting period ending 31 December 2016.
Amount of income brought into charge
The amount of the charge is set out in CTA2010/S565 and is
P – D
where
P is 90% of the profits of the UK property rental business, and
D is the amount the company actually distributed by the CTSA filing date for the period.
In the above example, the amount of deemed income to be charged to tax in the residual business would be 400.
See](https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm28020) for attribution of distributions following a S564 charge.