GREIT07045 - Breaches of conditions: Distribution Condition: general

The company (principal company in the case of Group REIT) must distribute as property income dividends 90% of the income of its tax-exempt property rental business (section 107(8) FA 2006). The 90% distribution requirement must be met in respect of each accounting period of the company, and must be met by the filing date for the CTSA return for that accounting period.

If the company has distributed less than 90% of the tax-exempt profits for any of the following reasons:

• legal impediment to distribution (see GREIT02055),
• finally agreed measure of tax-exempt profits is higher than the amount returned (see below), or
• sufficient distributions are declared but not paid out to certain shareholders as a result of reasonable steps taken in connection with the 10% rule (see GREIT07060),

the company (or group) can remain in the regime and the minor breach provisions are not invoked.

Failure to meet the Distribution Condition for any reason other these (unless the breach is regarded as serious) does not result in removal from the regime. For minor breaches, the remedy is a tax charge on the company, to make good any shortfall in tax that would have been deducted had the full 90% been distributed by the right date, as set out in regulation 6 SI 2006/2864. For details of when and how the regulation 6 tax charge is calculated, see GREIT07050.

Post-filing day adjustments to computation of tax-exempt profits

The measure of profits for the 90% distribution requirement is the income as measured for tax purposes of the tax-exempt business. The company will include an amount on its CTSA return for the period, but this may be altered subsequently, for example as the result of an HMRC enquiry. If the profit that is eventually agreed is higher than the amount returned, it is possible that the company will not have paid enough PID by the CTSA filing date to meet the 90% requirement.

Provided the company declares and pays an additional PID to reflect the higher distribution requirement within three months of the profits can no longer be altered, no tax charge arises to the company under regulation 6. Note however that an additional dividend declared to avoid a charge under regulation 6 does not count towards meeting the 90% distribution requirement for any other accounting period.

‘Can no longer be altered’ means when the assessment for the accounting period is final. Where there has been an enquiry into the return, the assessment can no longer be altered once either the company or HMRC has amended the original self assessment to the finally agreed profits, and the time limit to object to that amendment has passed.