GREIT08020 - Distributions: attribution rules: category (a) – 90% mandatory distribution

Distributions made by the company (principal company in the case of Group REIT) are attributed between PID and normal company dividends in up to five categories (section 123 FA 2006). See GREIT08025 to GREIT08040 for information about Categories (b) to (e).

90% requirement

Distributions made by the company to meet the mandatory 90% distribution requirement are earmarked as meeting the Category (a) requirement. This part of the distribution is a PID, paid under deduction of income tax at basic rate (other than for gross payment cases as set out in regulation 7 SI 2006/2867).

Group REITs

The amount the principal company of a Group REIT is required to pay out to meet the mandatory 90% distribution is based on the measure of income that, across the various members of the group, has been exempted from tax as a consequence of the group being a UK-REIT. In earmarking the distributable reserves of the principal company therefore it is not by reference to the nature of the profits as they arise to that company (which will often be as dividends paid up from subsidiaries that carry on tax-exempt business), but by reference to the amount of the various kinds of profit that arise to all the members of the group.

Interaction with company law and commercial concepts

When a company makes a distribution, it is paid out of distributable reserves as at a certain date and is usually declared in respect of the profits of a particular period of account. However, when attributing a portion of the distribution to Category (a), it is not necessary to preserve the accounting link with a particular period.

The requirement is that 90% of the tax-exempt income of an accounting period (as defined for CT purposes) is distributed as a PID by the CTSA filing date for that period. It is equally acceptable to HMRC to earmark part of each distribution made during an accounting period and in the 12 months up to the filing date for that period (example 1(2) in GREIT08023), as it is to earmark part or all of only the interim or final distributions that are declared in respect of the profits of the period of account (example 1(1)) in GREIT08023), or indeed any combination.

For the interaction between Category (a) attribution and interim distributions, see GREIT08045.