SAIM5310 - Dividends and other company distributions: UK Real Estate Investment Trusts: property income distributions

Property income distributions

FA06/S121 provides that in general distributions from the tax-exempt profits of a UK-REIT are taxable as profits of a UK property business, chargeable under Part 3 of ITTOIA05, in the case of a shareholder chargeable to income tax. For the taxation of a shareholder chargeable to corporation tax, see Greit08525 ( SAIM20000).

PIDs do not carry a tax credit

Generally where a person receives a distribution from a company resident in the UK, a one- ninth tax credit is attached to the distribution. This tax credit may be used by a shareholder that is not a company to offset their income tax liability. This kind of tax credit does not attach to a distribution that is paid by a UK-REIT out of its tax-exempt profits.

PIDs are separate from other property income

A UK-REIT distribution is treated as profits of a separate business from any other Schedule A or UK property business that the shareholder may have. Receipts of distributions from different UK-REITs are treated as receipts of the same business. This means that losses on other rental business of a shareholder can not be off-set against distributions from a UK-REIT.

This treatment of the UK-REIT distributions as deriving from a separate business is extended to the share of the distribution received by a partner in a partnership which is a shareholder in a UK-REIT.

The tax treatment as property income will continue to apply after the company has left the regime in respect of distributions deriving from profits that were tax-exempt within the regime.

Distributions of profits derived from capital gains that fall to be treated as tax-exempt will also be PID, paid under deduction of tax (other than for gross payment cases – see Greit08025).

Dividend vouchers provided to shareholders by a UK-REIT (and by a former UK-REIT) will make clear the amount of the distribution that is treated as a PID and the amount of tax that has been deducted from it on payment.

Certain PIDs are treated as trade receipts

The UK-REIT distribution is not treated as property income in various cases where a shareholder would normally be taxable on distributions as trading receipts. This affects financial traders and members of Lloyd’s. In such cases it remains taxable as a trade receipt.