IFM28034 | Real Estate Investment Trust : Distributions: attribution rules: category (c) - other income of the property rental business: examples

Facts for example 5

C has distributable reserves of 500 brought forward. This includes 150 income from the property rental business of previous accounting periods that has not yet been distributed (c); the balance is ‘other’ reserves (e). In 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 taxable income from other activities is 130 and chargeable gains from other activities are 70. Distributable reserves are 1,700. C pays no distributions in 2017 to which profits of the current year are attributed but decides to distribute 1,200 in March 2018 attributed wholly to 2017 profits.

Example 5

Having decided how much to distribute, the next step is to deduct the Category (a) requirement (100) and category (aa)(810) from the distributable reserves and allocate the 790 balance to the four elements of the brought forward pot (see IFM28010). Income from taxable activities (b) is 130, property rental business profits(c) is 150 b/f + 90, other (e) is 350 b/f + 70.

The final step is to attribute the 1,200 distribution by reference to the five categories. The first 100 is Category (a) and 810 is category (aa), total 910 is a PID payable under deduction of basic rate tax (other than for gross payment cases – see IFM28125). C decides to attribute 130 of the balance to Category (b) (taxable income). This is payable gross as a normal company dividend.

C has no choice about the balance of 160 left to attribute – this is attributed to income of the property rental business, up to the amount in that Category (240). Therefore the entire 160 is a PID attributable to Category (c) and payable under deduction of basic rate tax (other than for gross payment cases).

The 500 distributable reserves to carry forward will be made up of (c) 80 property rental business profits and (e) 420 other.

This table summarises the position: