GREIT12145 - Group conditions and rules: Financial Statements: G (property rental business) and G (residual): significant influence

One of the key factors determining how entities in which the group has an interest are treated in the financial statements of G (property rental business) and G (residual) is whether or not the group has significant influence over it. This is defined in regulation 3 SI 2006/2865.

Members of the group have significant influence in an entity if:

• at least one member of the group has a beneficial interest in the entity and
• members of the group have an interest in it of more than 20%.

The percentage interest members of the group have in an entity is measured by reference to their entitlement to profits available for distribution to equity holders. Where the entity is a company, equity holders are shareholders and entitlement to profits will be by reference to their entitlement to dividends.

For entities that are not companies, the entity is treated as a UK company and the rights of any person in the entity as shares in that company. For example, if the entity is an authorised unit trust, the units are treated as shares in a company and entitlement to profits is entitlement to distributions.

Excluded from the measure are profits available to an equity holder in any other capacity. For example, an equity holder may have shares in a company and have made a profit-related loan to the company. The percentage interest will be by reference to dividends on the shares and their entitlement to interest is excluded.

Note that unlike the IAS definition, there is no provision to allow an influence to be significant where the interest is 20% or less.