IFM22125 - Real Estate Investment Trust : Conditions and Tests: maximum shareholding: reasonable steps: CTA2010/S551(1)(b)
Source: gov.uk (2025-04-17)


If the company (principal company in the case of a Group REIT) has taken reasonable steps to prevent paying a dividend to a holder of excessive rights (HoER) that is not an excluded holder, then some or all of the additional charge will not be imposed. Set out below are some steps that HMRC will accept as being reasonable for the purposes of CTA2010/S551(1)(b). This does not prevent companies from taking other steps, if they are confident that HMRC will accept them as reasonable.

The steps described below have been discussed with the Financial Conduct Authority (FCA) in their capacity as the UK’s Listing Authority (LA) and with lawyers who are expert in UK company law. They have also been discussed with the Stock Exchange, who have confirmed that they should not contravene their rules. Note that not only will the company/principal company need to have procedures in place, the ‘reasonable steps’ get-out will apply only if the company has followed those procedures with reasonable diligence.

Before amending their articles, companies are advised to obtain their own advice and (where relevant) to seek clearance from the FCA as the UKLA (or other listing authority to which they are subject) – HMRC can do no more than give their view on whether proposals amount to ‘reasonable steps’ for the purposes of CTA2010/S551.

Necessary criteria for steps to be reasonable

The steps that the company (principal company in the case of Group REIT) takes to avoid paying a dividend in respect of a HoER (see IFM22105 (https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm22105) for the meaning of this term) will be considered reasonable if they include the following:

· a mechanism that can identify holders of excessive rights in the company (IFM22130 (https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm22130)),

· a prohibition on the payment of dividends on shares that form part of the shareholding of an HoER unless certain conditions are met (IFM22135 (https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm22135)),

· a mechanism to allow dividends to be paid on shares that form part of the shareholding of an HoER where the shareholder has disposed of their rights to dividends on their shares (IFM22140 (https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm22140)), and

· a mechanism that is designed to prevent a HoER being beneficially entitled to dividends on their shareholding (IFM22145 (https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm22145)).

Each of these is explored in more detail, at the cross-referenced pages given above, in the context of UK listing rules and company law. They may or may not be adaptable for companies incorporated outside the UK or listed other than on the London Stock Exchange, depending on local rules and regulations.

Optional procedure

The company may, if it wishes, also put in place a mechanism to require disposal of shares that form part of an excessive shareholding in certain circumstances. This might be where:

· the shareholder does not make arrangements to transfer entitlement to the dividends,

· there has been a failure to provide information about beneficial ownership of the shares on a request from the REIT, or

· the shareholder has failed to produce the information before a particular date (see IFM22130 (https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm22130)).

The same mechanism could also be used where a shareholder fails in other ways to comply with any requirements imposed by the company as part of its reasonable steps.

Distribution is paid in respect of excessive shareholding, despite procedures

Despite having taken steps with the features described above for being reasonable to identify excessive shareholdings and prevent payment of a dividend to the shareholder, there may be circumstances where a dividend is in fact paid out in respect of shares that form part of an excessive shareholding. Provided the company can show that it has taken reasonable steps and has used reasonable diligence in operating them, and that any certifications etc. it has relied on are not obviously deficient, HMRC will accept that the company has taken ‘reasonable steps’ for the purposes of CTA2010/S551(1)(b) and there would be no charge under CTA2010/S551.