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IFM28033 | Real Estate Investment Trust : Distributions: attribution rules: category (c) - other income of the property rental business: consequences of Category (b) choices: example

From HM Revenue & Customs · Investment Funds Manual

Facts for example 4

C becomes a UK-REIT on 1 January 2017, has no distributable reserves brought forward once it has paid out the final distribution for 2016 (which was all paid as a non-PID). For the accounting period ending 31 December 2017, the income of its property rental business is 1,000, the same as the accounting measure of profit, and includes 100 PID received from shares held in another UK-REIT. The gains as measured for TCGA purposes on disposals of properties involved in the property rental business, the relevant non-chargeable gains, are 100 and equal to the gains measured for accounting profits. Taxable income from other activities is 130 and chargeable gains from other activities are 70. The company’s income accrues evenly over the year. Distributable reserves in respect of 2017 are 1,300.

Example 4

Using the facts in Example 1(1) in IFM28023, C does not make an interim distribution for first half 2017 and in March 2018, declares a final distribution in respect of 2017 of 950. C does not make any further distributions in 2018. Category (a) is 100 and (aa) is 90% of 900 = 810, the total PID 910 is payable under deduction of basic rate tax.

  1. C decides not to allocate the excess over the mandatory distribution entirely to ‘taxable income’. C has two choices. C may decide to attribute none to Category (b). In this case the balance of 40 is a PID, attributed to income of the property rental business and payable under deduction of basic rate tax (other than for gross payment cases – see IFM28125). The 350 distributable reserves to carry forward will be made up of (b) 130 income from taxable activities, (c) 50 income from the property rental business, (d) 100 relevant non-chargeable gains, and (e) 70 other reserves.

  2. C may decide to attribute only part of the balance to Category (b), in this case 30. The remaining 10 is therefore attributable to (c) income of the property rental business, and is a PID and payable under deduction of basic rate tax (other than for gross payment cases – see IFM28125). The 350 distributable reserves to carry forward will be made up of (b) 100 income from taxable activities, (c) 80 income from the property rental business, (d) 100 relevant non-chargeable gains and (e) 70 other reserves.