IFM22355 - Real Estate Investment Trust : Group conditions and rules: Financial Statements: financing costs
Source: gov.uk (2025-04-17)


The Financing Costs included in the financial statement under CTA2010/S532(2)(a) are derived from the amount of interest etc. paid to third parties so far as the loans giving rise to interest relate to the worldwide property rental business (PRB) of the group.

How the group chooses to fund itself internally is immaterial for the purposes of working out this number (although of course whether internal funding is by debt or equity does make a difference for the calculation of the income of the UK PRB included within the financial statement under CTA2010/S532(2)(b).

The financing costs included in the financial statement under CTA2010/S532(2)(c) are derived from the amount of interest etc. paid to third parties so far as the loans giving rise to interest relating to other matters (i.e. residual business) of the group.

SI 2006/2865 Reg 6 sets out the steps for working out Financing Costs for the statements under CTA2010/S532(2)(a) and (c).

Step 1

The first step is to determine the amount of outside financing costs for the group in respect of its PRB. This is the costs of financing raised by group entities from non-group entities, so far as it has been applied to the UK PRB of group members.

If a group entity (other than the principal company) has outside financing costs and is not wholly owned by group entities, the financing costs must exclude the percentage of costs related to the beneficial interest in that entity held by non-group entities (SI2006/2865 Reg 5(3)).

‘Group entity’ means a company that is a member of the group, or an entity that is treated in the same way as a member of the group for financial statement purposes. This includes joint venture companies in respect of which a Joint Venture Look-Through election is in place; and OEICs and other non-corporate entities in which members of the group have ‘significant influence’ (broadly, owning more than 20% of the entity). 'Non-group entity’ means an entity which is not a group entity.

In the example in IFM22350 (https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm22350), the outside financing costs of the group in respect of its PRB are costs to principal A of 40 (1,000 @ 4%) plus costs to subsidiary B of 15 (300 @ 5%) = 55. This sum will be included as financing costs in the statement under CTA2010/S532(2)(a). However the financial statement must state separately the costs which are included here and referable to the UK PRB, see step 2.

Step 2

This step is to determine the percentages of outside financing costs in respect of UK PRB and any other activities carried on by the group.

UK PRB financing Costs is the UK PRB percentage of the outside financing costs that were calculated in Step 1.

The regulations do not prescribe how the proportion that applies to the property rental business or the UK property rental business is calculated. If an external loan is clearly linked to a particular property, for example because a bond issue has been made to finance a particular acquisition, then that will be an important factor. If there are no clear links, then an apportionment based on the fair value of the assets involved in the different activities can be used.

This figure is stated separately in the statement under CTA2010/S532(2)(a). In the example in IFM22350 (https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm22350) this is 47.

The financing costs incurred in respect of other matters are included in the statement under CTA2010/S532(2)(c). In the example in IFM22350 (https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm22350) this is nil.