Corporation Tax Act 2010

Profits: financing-cost ratio U.K.

543 Profit: financing-cost ratio U.K.

(1) This section applies to a UK REIT if the result of the calculation in subsection (2) is less than 1.25 for an accounting period.

(2) The calculation is—

where—

PP is the UK REIT's property profits for the accounting period (see section 544(1)), and

PFC is the UK REIT's property financing costs for the accounting period (see section 544(3)).

(3) The amount (“the excess”) given by subtracting—

(a) the property financing costs which would cause the calculation in subsection (2) to equal 1.25 for the accounting period, from

(b) the UK REIT's actual property financing costs for the period,

is charged to corporation tax in relation to the period under the charge to corporation tax on income.

(4) The excess is treated as profits of residual business—

(a) in the case of a group UK REIT, of the principal company of the group, and

(b) in the case of a company UK REIT, of the company.

(5) Accordingly it is charged to corporation tax at the rate mentioned in section 534(3) (rate at which profits of residual business are charged).

(6) No loss, deficit, expense or allowance may be set off against the excess.

(7) The Commissioners for Her Majesty's Revenue and Customs may waive a charge to corporation tax under this section in respect of an accounting period if they think that—

(a) the company was in severe financial difficulties at a time in the accounting period,

(b) the result of the calculation in subsection (2) is less than 1.25 in respect of the accounting period because of circumstances that arose unexpectedly, and

(c) in those circumstances the company could not reasonably have taken action to avoid the result being less than 1.25.

(8) The Treasury may make regulations which specify criteria to be applied by the Commissioners in determining whether to waive a charge under subsection (7).

544 Meaning of “property profits” and “property financing costs” U.K.

(1) For the purposes of section 543 “property profits” for an accounting period means—

(a) in the case of a group UK REIT, the sum of the profits of property rental business of members of the group that arise in the period, as shown in the financial statement under section 532(2)(b), and

(b) in the case of a company UK REIT, the amount of the profits of the company's property rental business (calculated in accordance with section 599) that arise in the period.

(2) References in subsection (1) to a company's profits are to its profits before the offset of—

(a) capital allowances,

(b) losses from a previous accounting period, and

(c) amounts taken into account as a result of section 599(3).

(3) For the purposes of section 543 “property financing costs” for an accounting period means—

(a) in the case of a group UK REIT, the amount of the financing costs incurred in respect of [F1 the group's property rental business in the United Kingdom], excluding financing costs owed by one member of the group to another, as shown in the financial statement under section 532(2)(a), and

(b) in the case of a company UK REIT, the amount of the financing costs incurred in the period in respect of the company's property rental business.

[F2 (3A) The reference in subsection (3)(a) to the group's property rental business in the United Kingdom is a reference to—

(a) property rental business of UK members of the group, and

(b) UK property rental business of other members.]

(4) In subsection (3) “financing costs” means the cost of debt finance.

(5) In calculating the costs of debt finance in relation to an accounting period the matters to be taken into account include—

(a) costs giving rise to debits in respect of debtor relationships of the group or company under Part 5 of CTA 2009 (loan relationships), other than debits in respect of exchange losses from such relationships (within the meaning given by section 475 of that Act),

(b) any exchange gain or loss from a debtor relationship within the meaning of that Part in relation to debt finance,

(c) any credit or debit falling to be brought into account in accordance with Part 7 of CTA 2009 (derivative contracts) in relation to debt finance,

(d) the financing cost implicit in a payment under a finance lease, and

(e) any other costs arising from what would be considered, in accordance with generally accepted accounting practice, to be a financing transaction.

Textual Amendments

F1 Words in s. 544(3)(a) substituted (retrospectively) by Finance Act 2024 (c. 3), Sch. 7 para. 7(2)(4)

F2 S. 544(3A) inserted (retrospectively) by Finance Act 2024 (c. 3), Sch. 7 para. 7(3)(4)