The Real Estate Investment Trusts (Breach of Conditions) Regulations 2006

EXPLANATORY NOTE

(This note is not part of the Regulations)

These Regulations make provision about the consequences flowing from a breach of the conditions in Part 4 of the Finance Act 2006 (c. 25 “the Act”), or a breach of the profit: financing costs ratio in section 115(2) of the Act, applying to a Real Estate Investment Trust.

Regulation 1 deals with the citation and commencement of the Regulations, and provides modifications for the application of the Regulations to Group Real Estate Investment Trusts.

Regulation 2 provides that, notwithstanding a breach of Conditions 3 and 4 in section 106 in consequence of a company’s becoming a member of a group or another group to which Part 4 of the Act applies, that Part is to continue to apply to the company.

Regulation 3 provides that, notwithstanding a breach of Condition 4 in section 106 caused by someone other than the company, Part 4 of the Act shall continue to apply provided that the breach is remedied no later than the end of the accounting period following that in which it began.

Regulation 4 provides that if a company breaches Condition 3 or Condition 4 in section 106 otherwise than in circumstances specified in regulation 3 or 4, Part 4 is taken to have ceased to apply to the company at the end of the previous accounting period.

Regulation 5 provides for the consequences of breaches of the property-holding conditions in section 107.

Regulation 6 provides for the consequences of the breach of the distribution condition in section 107.

Regulation 7 provides for the breach of the balance of business conditions.

Regulation 8 provides for the consequences of multiple breaches of separate conditions in different sections of Part 4.

Regulation 9 prescribes information requirements in respect of breaches of the conditions in sections 106(5) or (6), 107 or 108 of the Act.

Regulation 10 imposes a charge to tax where there is a distribution to a person holding more than the maximum permitted shareholding in a company to which Part 4 applies, and regulation 11 imposes obligations about the furnishing of information about such a distribution.

Regulation 12 imposes a charge to tax where the ratio of profit to financing costs is less than 1.25.

Regulation 13 imposes a similar charge in the case of a Group Real Estate Investment Trust.

Regulation 14 provides for the termination of the Real Estate Investment Trust régime under section 129(2)(b) where two notices under section 117 have been served within a ten year period.

A regulatory impact assessment for the introduction of the UK Real Estate Investment Trust regime was published in March 2006 and can be found at www.hmrc.gov.uk/ria.