HMRC Residency - DT Guidance Note 9

Real Estate Investment Trusts (UK-REIT)

This guidance note provides information about the claims process when Property Income Distributions (PIDs) are paid to non-residents of the UK.

Background

From 1 January 2007, new legislation gives qualifying non-residents the opportunity to claim repayment of some or all of the tax that is deducted from PIDs that are paid by UK-REITs.

Amounts paid out to investors in a UK-REIT are legally dividends and are declared by the company in the same way as any other company dividend. For UK tax purposes, the part of the dividend that represents distributions of the UK-REIT’s tax-exempt profits (PIDs) are deemed to be profits of a UK property business, and paid under deduction of basic rate tax currently at the rate of 22%.

Because PIDs are a distribution of profits, the title to which is constituted by shares (see definition of ‘dividend’ in Article 10 of the OECD Model Treaty), relief from UK tax must be considered under the terms of the dividend article of each double taxation treaty.

Although PIDs are deemed to be property income for UK tax purposes, the source of the income is the company paying the dividends (rather than the property owned by the company). For that reason, PIDs do not fall within the Income from Immoveable Property article of a double taxation treaty.

A UK-REIT may also pay a dividend to which a one-ninth tax credit is imputed. It is important to note that, as with all other dividends that are paid by UK companies, no tax credit is available to pay to a non-resident shareholder who receives such a dividend. Please see the further information about dividends and tax credits.

Double Taxation relief

Double taxation treaties contain a variety of different forms of words in the article dealing with dividends - many of which limit the amount of tax that may be charged in the UK. For that reason it is necessary to consider the terms of each treaty.

The DT Digest (PDF 155K) shows for each treaty if relief from UK tax is available to a resident of the other country who is paid a PID by a UK-REIT and, where appropriate, the amount of tax that will be retained under the terms of the dividend article.

Treaty claims must be made in respect of each dividend - but any number of PIDs can be included on a single claim form. Directions under the terms of SI1970/488 to operate nil or reduced rates of deduction will not be issued to the UK-REIT.

Personal Allowances

Some non-residents of the United Kingdom qualify for personal allowances to set against their UK taxable income. If the investor has unused personal allowances they may claim repayment of some or all of the tax that is deducted from PIDs.

The DT Digest also identifies, for each territory, the availability of personal allowances.

Claims

Non-residents must claim personal allowances and/or treaty benefits from HMRC in the usual way.

UK-REIT DT Individual and UK-REIT DT Company forms are available by visiting the Claim Forms page. These forms will also be made available in languages other than English.

The procedure for claims on forms UK-REIT DT Individual and UK-REIT DT Company differs from the normal claims procedure. Please send

• The first claim to the tax authority of the country of residence for certification.
• Second and subsequent claims direct to HM Revenue and Customs - Residency.

However, residents of Switzerland must send all claims to the Cantonal and Federal tax authorities for certification in the usual way.

A number of "country specific" UK-REIT claim forms will be published in due course.

The claim form R43 and Notes for tax year 2006/2007 contain sufficient information about PIDs to allow qualifying non-resident individuals to claim relief from UK tax using personal allowances.

The Self-Assessment Help Sheet IR304 for 2006/2007 also includes information to allow a claim for double taxation treaty benefits to be made.

Non-residents should not use form R40.

Contact details:

HM Revenue and Customs-Residency
Technical Advice Group
PO Box 46
Fitz Roy House
Nottingham
NG2 1BD

Telephone 44 (0)115 974 1946
Fax 44 (0)115 974 2063

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