BECOMING A UK-REIT 08
“90% of its net property rental income” The amount required to be distributed at least 90% of the aggregate net property rental income derived from the UK property rental businesses of every company in the group. This must be distributed by the parent company of the group to its shareholders. Net property rental income for these purposes is calculated according to UK tax rather than accounting principles and accordingly, the amount required to be distributed to meet the distribution requirement may not equal 90% of profit before tax per the accounts. Differences may arise as a result of capital allowances (a tax measure of depreciation on expenditure on qualifying assets); fair value movements on financial instruments that are disregarded for tax purposes; revaluation movements; and expenses that are not deductible for tax purposes, e.g. lease inducement payments or entertainment.
A UK-REIT which invests in another UK-REIT is required to distribute to its shareholders 100% of the PIDs received by it. There is no requirement to distribute any gains derived from the sale of properties or any profits derived from the residual business. To the extent that the former are distributed, they will typically be PIDs and will be treated as property income in the hands of shareholders. Where a PID is paid, the UK-REIT must withhold tax at a rate of 20%, and pay this over to HMRC, unless the dividend is payable to a specific category of investor, such as a UK company, a registered pension scheme or a charity. To the extent that profits and gains of the residual business, or ‘book to tax’ differences of the property rental business, are distributed, these are distributed as normal dividends.
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