IFM29300 | Real Estate Investment Trust :Cancellation of a tax advantage: CTA2010/S545

HMRC may issue a notice of cancellation of a tax advantage if an officer thinks that a UK REIT company or group member has tried to obtain a tax advantage for itself or for another person.

For this purpose, “tax advantage” is defined at CTA2010/S1139 and includes—

(a) a relief from tax or increased relief from tax,

(b) a repayment of tax or increased repayment of tax,

(c) the avoidance or reduction of a charge to tax or an assessment to tax,

(d) the avoidance of a possible assessment to tax,

(e) the avoidance or reduction of a charge or assessment to a charge under TIOPA2010/Part 9A (controlled foreign companies),

(f) the avoidance or reduction of a charge or assessment to the bank levy under FA2011/Schedule 19 (the bank levy) or

(g) the avoidance or reduction of a charge to diverted profits tax.

This does not include simply being a UK-REIT company or group member or incurring genuine commercial business expenditure. The company must have done something, before or after joining the UK-REIT regime, which HMRC considers is designed to create or inflate or apply a loss, deduction or expense (whether or not made or incurred by the company).

HM Treasury has the power to specify in regulations other arrangements which may be considered to require a notice under CTA2010/S545. To date no such regulations have been made.

The notice issued must specify the tax advantage and the means of counteracting it. Counteraction may be by way of an assessment, cancellation of a right to a repayment, a requirement to return a repayment already made or the calculation or recalculation of the profits or gains or liability to tax. Additionally, an assessment may be made on the company in an amount of corporation tax or income tax HMRC considers to be equivalent to the value of the tax advantage.

A company receiving a notice under CTA2010/S545 has a right to appeal against this. Any appeal must be made in writing to HMRC within 30 days of the date on which the notice was given. An appeal referred to the tribunal may result in the notice being quashed, affirmed or varied.

Where a company or group REIT receives two or more S545 notices within any 10 year period, or where a single notice is received for an attempt that HMRC considers serious, then HMRC may issue a notice under CTA2010/S572(1) that the company or group ceases to be a UK-REIT at the end of the accounting period before the accounting period in which the event, or latest event, that caused the officer to issue the S545 notice happened. The notice must state the reason for it being given.

The company has the right to appeal against a S572(1) notice. Any appeal must be in writing and given to HMRC within 30 days of the date the notice was given.