IFM28125 - Real Estate Investment Trust : Distributions: administration: gross payment: SI2006/2867/Reg 7
Source: gov.uk (2025-04-17)


The UK REIT company, or principal company of the UK Group REIT, must pay PID gross if they reasonably believe that the person beneficially entitled to the payment falls within any of the categories listed in SI 2006/2867/Reg 7. The default option where the company has no information about whether the beneficial owner of a share is within one of the categories for gross payment, is to pay PID under deduction of tax.

For example, where shares are held by a nominee on behalf of a registered charity, the company/principal company can pay gross only if it has evidence that the beneficial owner of so many of the shares held by the nominee are held on behalf of the charity. Companies will be subject to audit by HMRC of their PID payment procedures, which will include sample checks of how they have exercised reasonable belief.

If the owner of the shares has sold or transferred the right to receive distributions, without selling the shares themselves, the company must pay PID under deduction of tax at the basic rate (SI 2006/2867/Reg 7(7)).

Categories of gross recipients

These are listed in regulation 7 and include:
- a UK resident company;
- a UK branch of an overseas company that will treat the income as part of the profits of the UK permanent establishment (PE);
- specified tax exempt bodies, such as a local authority, health service body, the European Investment Fund, or charity (for a full list see paragraph (3);
- the scheme administrator of a registered pension scheme or a manager (or his nominee) of a PEP, ISA or Child Trust Fund and the payment is in respect of the plan investments; (for a full list see paragraph 4); and
- a partnership, each member of which is a person in any of the categories listed in regulation 7. In addition, special rules apply to partnerships with some (but not all) members within these categories: see below.
- the European Investment Fund.
Distributions to partnerships

Where the PID recipient is a partnership, SI 2006/2867/Reg 7(6) indicates that PID should be paid gross if all members of the partnership fall into one of the categories above.

Alternatively, from 11 July 2023 onwards, for partnerships with some members who are not within these categories, the REIT may elect for partial gross payment of PID to the partnership under SI 2006/2867/Reg 7A(2). Under Regulation 7A, the company may elect to pay part of the PID to the partnership gross and deduct tax from the other part, if it has a reasonable belief
- that certain members of the partnership are entitled to receive gross payment under regulation 7;
- as to the share of partnership profits that each member is entitled to; and
- that arrangements exist that will result in each partner’s share of the partnership profits reflecting whether or not tax was deducted in relation to that partner.
No formal election is required in this respect; simply by making a partial gross payment of PID in accordance with SI2006/2867/Reg 7A the company is treated as electing to use this method for payment (SI2006/2867/Reg 7A(1)(d)).

The relevant proportion of a distribution to be paid without deduction of tax is calculated in accordance with the proportion of partnership profits to which those partners who can be paid gross are entitled to. So if just one partner in the partnership can be paid gross and they are entitled to 30% of the partnership profits, then 30% of the PID can be paid gross, with 70% of the PID having tax deducted.

Reasonable belief

The 'reasonable belief' test requires the company to pay a PID gross even when it is not in a position to know beyond doubt the status of the recipient. The payer can therefore act on the basis of assurances given by the recipient or by an intermediary if it considers these assurances to be sufficient grounds for reasonable belief. For example, where a shareholder or intermediary completes a declaration that they are either the beneficial owner of a shareholding or that they are holding the shareholding on behalf of the beneficial owner in a UK-REIT and they confirm that they (or the beneficial owner) are eligible for gross PID payments under regulation 7, HMRC would consider that to be evidence of ‘reasonable belief’.

Note that HMRC staff have a duty of confidentiality to taxpayers and are unlikely to be able to respond to requests for confirmation that the recipient is within one of the regulation 7 categories or confirm details of partnership profit entitlements. Where for example, it is a question of whether the relevant distribution will be taken into account when computing the profits of the UK PE of a non-resident company, the payer is encouraged to seek any assurance they feel they need from the recipient directly.

Where it is ultimately found that the recipient was not entitled to receive the payment gross, the company should put the position right without delay . (SI2006/2867/Reg7(8)-(9) and Reg 7A(5)). As soon as the mistake is discovered, the company should send in an amended return, and pay over the additional tax (being the amount that should have been withheld). If the company does not do so, HMRC can make an assessment on the company to recover the tax. (SI2006/2867/Reg 9)

In a case where the company does not believe that the conditions specified are satisfied but proceeds to make the payment gross or where the belief is clearly unreasonable then a penalty under TMA1970/S98 may be appropriate.