1.Section 39 and Schedule 19 allows the income from UK real estate investment trusts (REITs) investing in other UK REITs to be treated as income of the investing REIT's tax exempt property rental business. The property income distribution (PID) that a UK REIT receives from another UK REIT in which it invests will be tax exempt. For the purpose of the balance of business test, the investment by a REIT in another REIT will be included as an asset of the investing REIT's property rental business. The investing REIT must distribute 100 per cent of the PID it receives from investing in another REIT to its investors.
2.Paragraph 2 amends section 530 Corporation Tax Act 2010 (CTA 2010). This section sets out the percentage of UK profits from a property rental business that a group or company UK REIT must distribute in an accounting period in order to fulfil the distribution of profits condition.
3.Paragraph 2(2) introduces a new requirement (new section 530(1) CTA 2010) that all of a group UK REIT’s profits that are UK REIT investment profits must be distributed. UK REIT investment profits are defined at paragraph 7. The existing requirement to distribute at least 90 per cent of the rest of the profits is at new section 530 (1) (b) CTA 2010.
4.Paragraph 2(3) introduces the same requirement for company UK REITs as for a group UK REIT in respect of UK REIT investment profits.
5.Paragraph 3 makes consequential amendments to section 530A CTA 2010. This section was introduced in Finance Act 2012 and sets out the distribution of profits condition where there has been an increase in profits after the delivery of a tax return.
6.Paragraph 4 amends the balance of business condition in section 531 CTA 2010 to include relevant UK REIT shares within the balance of business assets condition for both group and company UK REITs. Relevant UK REIT shares are defined at subparagraph 4.
7.Paragraphs 5 and 6 make consequential amendments.
8.Paragraph 7 inserts new section 549A into CTA 2010. This section introduces the term “UK REIT investment profits” and defines it at for a group in new section 549A(5) and for a company is new section 549A (7). UK REIT investment profits are treated as profits of a UK property rental business and new section 549A(3) explains that references to property rental profits and similar terms within part 12 CTA 2010 include UK REIT investment profits. They are, however, treated as separate from other property rental business profits (new section 549A(2)).
9.Paragraph 8 makes consequential amendments to section 550 CTA 2010 required by the introduction of “UK REIT investment profits”.
10.Paragraphs 9 (company) and 10 (group) apply Chapter 10 (joint ventures) to distributions that are UK REIT investment profits within new section 549A.
11.Paragraph 11 amends section 605 to ensure that UK REIT investment profits are not excluded from the definition of a property rental business.
12.Paragraph 12 is a consequential amendment required to ensure that UK REIT investment profits are included when considering deduction of tax at source.
13.Paragraph 13 sets out the operational date for the changes within the schedule.
14.UK REITs are tax advantaged vehicles introduced to encourage investment in the property sector.
15.A REIT is exempt from corporation tax on its profits from a property rental business. It is required to distribute 90 per cent of its profits by way of a property income distribution (PID). A PID is treated in the hands of investors as income from property and taxed accordingly.