C becomes a UK-REIT on 1 January 2007, has no distributable reserves brought forward once it has paid out the final dividend for 2006 (which was all paid as a non-PID). For accounting period ending 31 December 2007, the income of its tax-exempt business is 1,000, and is the same as the accounting measure of income profit. The gains as measured for TCGA purposes and accounting profits on disposals of properties involved in the tax-exempt business are both 100. Taxable income from other activities is 130 and chargeable gains from non tax-exempt activities are 70. The company’s income accrues evenly over the year. Distributable reserves in respect of 2007 are 1,300.
C does not make an interim distribution for first half 2007 and in March 2008, declares a final distribution in respect of 2007 of 950. C does not make any further distributions in 2008. Category (a) is 90% of 1,000 = 900, is a PID and payable under deduction of basic rate tax.
Instead of a single dividend in respect of 2007 profits, C pays
an interim distribution of 300 in August 2007, and a final
distribution in March 2008 of 650. C estimates that the tax-exempt
income of the first half of 2007 is 500, and decides to play safe
and pay the entire interim distribution as PID. C does not plan to
pay an interim distribution during 2008.
To meet the 90% mandatory distribution in respect of 2007, of
the distributions paid out from 1 January 2007 to 31 December 2008,
Category (a) is 90% of 1,000 = 900. C attributes the entire 300
interim distribution to this category, and 600 of the final
distribution.
To avoid paying a small amount as non-PID, C pays the
remaining 50 as PID as well. This 50 could either be attributed to
Category (c) in respect of 2007 profits or earmarked towards the
90% mandatory distribution in respect of 2008 tax-exempt
income.
