GREIT02150 - Conditions and Tests: maximum shareholding: reasonable steps: retained dividends: interaction with other rules

90% distribution requirement

A company may withhold payment of some or all of dividend as a result of reasonable steps taken to avoid a charge under section 114 FA 2006 (as imposed by regulation 10 SI 2006/2864).

If so, the amount withheld is treated as having being paid for the purposes of meeting the distribution requirement (section 107(9)(b) FA 2006). This means that the distribution requirement is met by reference to the amount of dividend declared, even if there are delays in paying some of it to beneficial owners because of the 10% shareholding rule.

Requirement to account for tax on property income distributions

The regulations in SI 2006/2867 that apply to the deduction and accounting to HMRC of tax from payments of distributions out of the profits of the tax-exempt business apply equally to dividends that are withheld (section 122(4) FA 2006). Other than where the dividend is paid to the types of person listed in regulation 7(4) (a trustee of a registered pension scheme or the manager of an ISA, PEP or CTF), the requirement to deduct is by reference to the nature of the person beneficially entitled to the dividend.

As the company is unlikely to know who will eventually be beneficially entitled to the dividend when it can be released, the company should deduct tax on payment of retained dividends into trust, and account to HMRC for the tax in the normal way. When the dividend can be released, and the beneficial recipient is entitled to gross payment, the company should submit a revised CT61(Z) for the return period when the dividend was originally paid into trust to reflect this.

The date withheld amounts are treated as paid is the same date that applies to the dividends that are paid out to shareholders (i.e. when they due and payable – section 834(3) ICTA).