IFM28010 - Real Estate Investment Trust : Distributions: attribution rules: CTA2010/S550
Source: gov.uk (2025-04-17)


The rules for identifying which distributions made by the company (principal company in the case of a Group REIT) are from profits of the property rental business (and thus payable under deduction of income tax) are in CTA2010/S550. They require the company to attribute each distribution across six categories by reference to the activities that gave rise to the amounts in the company’s distributable reserves (i.e. profit and loss reserves) or group REIT’s consolidated distributable reserves.

The six categories are:

(a) First, to payments out of “UK REIT investment profits” (i.e. property income distributions received from another REIT);

(aa) Second, to 90% of the profits from the property rental business in the UK, calculated in accordance with CTA2010/S599 and excluding any “UK REIT investment profits” in (a) above;

(b) Third, so far as the company chooses, to amounts derived from activities of a kind in respect of which CT is chargeable in relation to income;

(c) Fourth, to any remaining profits of property rental business in the UK (calculated in accordance with CTA2010/S599) not yet attributed to a distribution;

(d) Fifth, to distribution of relevant non-chargeable gains, which includes gains accruing to the property rental business that are not chargeable gains as a result of CTA2010/S535 or S535A; and

(e) Sixth, to other distributions.

The amounts that are attributed to profits (income and gains) of the property rental business (categories (a), (aa), (c) and (d)) are referred to in guidance (but not in legislation) as property income distributions or PIDs. These are in general treated as income from UK property in the hands of the recipient.

Any other payments made by the company, and all distributions made by subsidiaries of a Group REIT that are treated as distributions for tax purposes, are treated as “normal” company distributions and are not subject to the deduction of basic rate income tax rules that apply to PIDs (referred to in guidance as ‘non-PID dividends’).

Amounts attributed to Categories (a), (aa), (c) and (d) will always be PIDs and payable under deduction of basic rate tax (apart from where SI 2006/2867/regulation 7 or 7A applies to allow gross payment; see IFM28125 (https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm28125)).

Amounts attributed to Categories (b) and (e) will always be payable as normal company distributions. For more detail on each of the categories and examples, see IFM28015 (https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm28015) onwards.

Before considering how any individual distribution is to be attributed, as a prior step, the company needs to establish the distributable reserves (profit and loss reserves) as shown in the most recent set of accounts. For a Group REIT, the principal company must first of all establish the group consolidated distributable reserves (consolidated profit and loss reserves - which are likely to be different from the sum of the distributable reserves of each member of the group) and split that between those that relate to activities giving rise to income and those from other activities. This might include for example gains on disposals of assets.

In addition, the company will need to estimate the profits of the property rental business, so as to ensure that the distribution requirement can be met in respect of the accounting period from distributions paid before the filing date of the CTSA return for that period.

Dividend vouchers

In the dividend vouchers provided to shareholders, there is no need to spell out the attribution of the PID part of the payment to categories (a), (aa), (c) and (d), nor from which accounting period the distributable reserves originate. The vouchers need show only the aggregate amount that is derived from profits of the property rental business. Similarly, non-PID dividends that relate to category (b) or (e) can be shown as a single amount, without showing the attribution to category or accounting period.

Reconciliation

In the reconciliation that accompanies the final CT61(Z) for the return period ending on the last day of the accounting period, the company needs to show how the PIDs and non-PID dividends paid in the accounting period have been attributed by the company to the six categories. Although not required by the legislation, the company may find it helpful to identify within categories (a) and (aa) the accounting periods to which a mandatory PID relates.

If the company did not pay any PIDs in the final return period, it is sufficient to send in the reconciliation – there is no need to send in a nil CT61(Z).

HMRC have developed a PID Tracker template which forms part of their REIT financial statements tool (see IFM22300 (https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm22300)).

Monitoring the attribution of profits

The REIT company / principal company should be regularly monitoring profit projections and interim accounting records for the property rental business to ensure that the distributions paid are attributed to the correct profits or gains and that amounts are only paid as PIDs where there are property rental business profits or gains available for distribution. If payments cannot be attributed to property rental business profits or gains, these are non-PID dividends and are normal company distributions.

Commitments a REIT may have made in advance to shareholders to pay PIDs of a particular amount cannot be fulfilled where there are not sufficient profits or reserves available in categories (a), (aa), (c) or (d) (in line with brought forward balances and current profit projections for the relevant accounting period interim/ final accounts). Any amounts paid in excess of the available property rental business profits and gains should be allocated as normal company distributions from other reserves, categories (b) or (e), when paid (subject to those reserves being available for distribution under company law principles).

If a company/principal company pays a distribution as a PID and later identifies there were not sufficient property rental business profits or gains available (as set out above), so it is in reality a normal company distribution, the REIT must immediately notify HMRC and take remedial action (see IFM28120 (https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm28120)).