The rules for identifying which
distributions made by the company (principal
company in the case of a Group REIT) are from profits of the
tax-exempt property rental business (and thus payable under
deduction of income tax) are in section 123 FA 2006. It does this
by requiring the company to attribute each distribution across five
categories by reference to the activities that gave rise to the
amounts in the company’s distributable reserves.
The five categories are:
The amounts that are attributed to profits (income and gains) of
the tax-exempt business (i.e. categories (a), (c) and (d)) are
referred to in guidance (but not in legislation) as property income
distributions or PIDs. These are in general treated as income from
UK property in the hands of the recipient.
Any other payments made by the company, and all distributions
made by subsidiaries of a Group REIT that are treated as
distributions for tax purposes are not subject to the deduction of
basic rate income tax rules that apply to PIDs (referred to in
guidance as ‘non-PID dividends’).
Amounts attributed to Categories (a), (c) and (d) will always
be PID and payable under deduction of basic rate tax (apart from
where regulation 7 SI 2006/2867 applies to allow gross payment see
GREIT08125. Amounts attributed to
Categories (b) and (e) will always be payable as normal company
distributions. For more detail on each of the categories and
examples, see
GREIT08020.
Before considering how any individual distribution is to be
attributed, as a prior step, the company needs to establish the
distributable reserves as shown in the most recent set of accounts.
For a Group REIT, the principal company must first of all establish
the group consolidated distributable reserves (which are likely to
be different from the sum of the distributable reserves of each
member of the group) and to split that between those that relate to
activities giving rise to income and those from other activities.
This might include for example gains on disposals of assets.
In addition, the company will need to estimate the profits of
the tax-exempt business, so as to ensure that the distribution
requirement can be met in respect of the accounting period from
distributions paid before the filing date of the CTSA return for
that period.
In the dividend vouchers provided to shareholders, there is no need to spell out the attribution of the PID part of the payment to categories (a), (c) and (d), nor from which accounting period the distributable reserves originate. The vouchers need show only the aggregate amount that is derived from profits of the tax-exempt business. Similarly, non-PID dividends that relate to Category (b) or (e) can be shown as a single amount, without showing the attribution to category or accounting period.
In the reconciliation that accompanies the final CT61(Z) for the
return period ending on the last day of the accounting period, the
company does need to show how the PID and non-PID dividends paid in
the accounting period have been attributed by the company to the
five categories. Although not required by the legislation, the
company may find it helpful to identify within Category (a) the
accounting periods to which the mandatory 90% PID relates.
If the company did not pay any PID in the final return
period, it is sufficient to send in the reconciliation –
there is no need to send in a nil CT61(Z).
