IFM28210 - Real Estate Investment Trust : distributions: manufactured payments: manufactured PIDs
Source: gov.uk (2025-04-17)


For payments made on or after 1 January 2014, the legislation applying to most manufactured payments for corporation tax and income tax purposes can be found in CTA 2010/Part 17A and ITA07/Part 11ZA respectively (see CFM74440 (https://www.gov.uk/hmrc-internal-manuals/corporate-finance-manual/cfm74440)). However, there continue to be separate rules applying to manufactured payments made in respect of PID payments by UK REITs. These are detailed below.

A manufactured PID arising from a stock lending arrangement of UK-REIT shares follows the description of a manufactured payment mentioned in ITA07/S614ZC(1). The separate rules referenced above then ensure that for tax purposes an MPID is treated as if it were an actual PID (see taxation of recipient below).

Tax treatment of payer of manufactured dividend

For corporation tax purposes, the general rule is that no deduction is allowed in respect of the payment of the MPID by a company (CTA2010/S814C; see CFM74440 (https://www.gov.uk/hmrc-internal-manuals/corporate-finance-manual/cfm74440)). However, this rule is modified in certain situations and the payment is treated as:
- an expense of a trade if paid by a company in the course of its trade, or;
- a management expense if paid in connection with an investment business provided the real dividend was PID taxable under CTA2010/S548(5), or;
- an expense of a life assurance business (or business of an insurance company treated as life assurance business by virtue of FA2012/Part 2) provided the real dividend was PID taxable under CTA2010/S548(5).
The amount of the MPID that is deductible for the company that pays the MPID is equal to the amount of the real PID paid by the UK-REIT. This is notwithstanding that the actual amount paid by way of MPIDs may exceed this.

The separate rules in ITA07/S918 provide that where an MPID is paid by a UK resident or a UK permanent establishment of a non-UK resident, the Real Estate Investment Trust (Assessment and Recovery of Tax) Regulations 2006 (SI2006/2867) apply to the payer in the same way that they would apply to a payment of a PID by a UK REIT (see ITA2007/S918(3) and IFM28220 (https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm28220)). As a result, such a payer may be required to withhold tax on payment of an MPID.

Taxation of recipient

The recipient of an MPID paid by a UK resident or a UK permanent establishment of a non-UK resident is treated for tax purposes in the same way as the recipient of an actual PID paid out of the tax-exempt profits of the property rental business by a UK-REIT.

The amount of the MPID that is taxable on the recipient is equal to the amount of the real PID paid by the UK-REIT. This is notwithstanding that the actual amount of the manufactured payment may exceed this.

Non-resident recipients of an MPID may be able to claim repayment of any tax withheld from the MPID under treaty provisions in the same way as they would for tax withheld on normal PID payments (see IFM28220 (https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm28220)).

Repos – repurchase price reflects dividend

As part of a sale and repurchase agreement (repo) over REIT shares, there might be no actual payment made between the parties in respect of any dividends paid on those shares. Instead, the repurchase price of the shares would be reduced to reflect a property income dividend receivable otherwise than by the original owner (the borrower). This may happen if the repo takes place over a dividend date. In these circumstances, the other party to the repo (the lender) is deemed to make an MPID.

The amount of the deemed MPID is equal to the gross amount of the actual PID paid by the UK-REIT before the deduction of any withholding tax (the ‘gross’ amount). Any withholding tax that has been deducted from the actual property income dividend as required by SI 2006/2867, will be deemed to have been deducted from the amount of the deemed MPID. The repurchase price of the shares that are the subject of the repo is then deemed to be increased by the gross amount of the property income dividend received from the UK-REIT (see CFM46100+ (https://www.gov.uk/hmrc-internal-manuals/corporate-finance-manual/cfm46100) for more on repos).