IFM28025 | Real Estate Investment Trust : Distributions: attribution rules: category (b) - income from taxable activities: CTA2010/S550(2)(b)

If the distribution is more than the mandatory amounts (see Category (a) and (aa) at IFM28015 and IFM28020) the company has a choice over the next part. It can be earmarked as relating to as much or as little of the company’s income from taxable activities as the company chooses.

There is no requirement to attribute all the excess over the mandatory amounts to income from taxable activities: the company can choose to attribute just a part of it, or indeed none of it to this category. For information about the other Categories, see IFM28030.

Income from taxable activities

For Category (b) purposes, this consists of amounts which derive from activities of a kind in respect of which CT is chargeable in relation to income. This therefore includes not only trading profits and any other residual income, it also includes the difference between the income of the property rental business as measured for tax purposes and the income as measured for accounting purposes. The main reason for such a difference is where capital allowances exceed depreciation for an accounting period.

Where the company breaches the distribution requirement and incurs a charge under CTA2010/S564 then the amount charged is treated as profits of the residual business (see IFM27050). This effectively re-characterises an amount of property rental business profits as residual business profits. It follows that attribution of a distribution from these profits would be to category (b).

Note that this category includes the amount in respect of the relevant accounting period, and any amounts that come within the description from previous periods (including pre-entry) to the extent they have not been earmarked already. The attribution of the distribution to category (b) may be restricted by the total amount of residual business reserves available. It is not possible to attribute distributions in excess of the reserve available in category (b).

For examples of attributing distribution to Category (b), see IFM28028.