Finance (No. 4) Bill

Session 2010 - 12
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Finance (No. 4) Bill

Finance (No. 4) Bill
Schedule 4 — Real estate investment trusts
192

(b)
a company UK REIT becoming a member of a group UK
REIT,

and, accordingly, the breach is to be ignored.
(4)
This section is subject to section 562C.
562C
Breach of further condition relating to shares in accounting periods 1,
5
2 and 3
(1)
Subsection (2) applies if the condition in section 528A, as relaxed by
section 528B, is not met in relation to accounting period 1, accounting
period 2 and accounting period 3.
(2)
The group or company (as the case may be) is to be treated as having
10
ceased to be a UK REIT at the end of accounting period 2.
(3)
But subsection (2) does not apply if the condition, as relaxed, is not
met as a result of—
(a)
the principal company of a group UK REIT becoming a
member of another group UK REIT, or
15
(b)
a company UK REIT becoming a member of a group UK
REIT,

and, accordingly, the breach is to be ignored.
(4)
In this section “accounting period 2” and “accounting period 3” have
the same meaning as in section 528B.”
20
19    (1)
Section 572 (termination by notice given by HMRC) is amended as follows.
      (2)
In subsection (2) before “574” insert “573B,”.
      (3)
Before subsection (6) insert—
“(5B)
Subsection (4)(a) has effect subject to section 573B(9).”
20
Before section 574 insert—
25
“573B
Notice under section 572: further condition relating to shares not met
(1)
In the case of a group UK REIT, an officer of Revenue and Customs
may give a notice under section 572(1) if—
(a)
the condition in section 528A (further condition relating to
shares) would not be met in relation to an accounting period
30
(“the relevant accounting period”) but for section 528B, and
(b)
subsection (2) applies to a company which is a member of the
group at any time during the relevant accounting period.
(2)
This subsection applies to a company if it has benefited from the
relaxation of the condition in section 528A in relation to 3 or more
35
accounting periods (apart from the relevant accounting period).
(3)
In the case of a company UK REIT, an officer of Revenue and
Customs may give a notice under section 572(1) if—
(a)
the condition in section 528A (further condition relating to
shares) would not be met in relation to an accounting period
40
(“the relevant accounting period”) but for section 528B, and
(b)
the company has benefited from the relaxation of the
condition in section 528A in relation to 3 or more accounting
periods (apart from the relevant accounting period).

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Schedule 4 — Real estate investment trusts
193

(4)
For the purposes of this section a company benefits from the
relaxation of the condition in section 528A if—
(a)
it is a member of a group UK REIT at any time during an
accounting period in relation to which the condition in
section 528A would not be met but for section 528B, or
5
(b)
at any time it is a company UK REIT and the condition in
section 528A would not be met in relation to an accounting
period but for section 528B,

and the accounting period “in relation to” which the company
benefits from the relaxation of the condition in section 528A is the
10
accounting period mentioned in paragraph (a) or (b) (as the case may
be).
(5)
None of subsections (1)(a), (3)(a), (4)(a) and (4)(b) covers cases in
which the condition in section 528A would not be met as a result of—
(a)
the principal company of a group UK REIT becoming a
15
member of another group UK REIT, or
(b)
a company UK REIT becoming a member of a group UK
REIT.
(6)
Subsection (7) applies if—
(a)
a company ceases to carry on a business (“the transferred
20
business”) which it carried on at any time during an
accounting period in relation to which the company benefits
from the relaxation of the condition in section 528A, and
(b)
another company (“company X”) begins to carry on the
transferred business.
25

In paragraph (a) the reference to a business includes a part of a
business.
(7)
The following companies are to be taken to benefit from the
relaxation of the condition in section 528A in relation to the
accounting period in question—
30
(a)
company X, and
(b)
if company X subsequently ceases to carry on the transferred
business (or any part of it), any other companies which from
time to time carry on the transferred business (or any part of
it).
35
(8)
If a notice is given under section 572(1) in a case within this section,
subsection (9) applies instead of section 572(4)(a).
(9)
The group or company (as the case may be) is to be taken to have
ceased to be a UK REIT on—
(a)
the first day of accounting period 1, or
40
(b)
such later day as may be specified by the officer of Revenue
and Customs in the notice.”
21    (1)
Subject to what follows, the amendments made by paragraphs 14 to 20 have
effect for accounting periods beginning on or after the day on which this Act
is passed.
45
      (2)
Sections 528B, 562C and 573B have no effect in relation to—

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Schedule 4 — Real estate investment trusts
194

(a)
groups of companies in respect of which notices are given under
section 523 specifying a date which is before the day on which this
Act is passed, or
(b)
companies which give notices under section 524 specifying a date
which is before the day on which this Act is passed.
5
Being a UK REIT: condition as to distribution of profits
22
In section 530 (condition as to distribution of profits) in subsection (6D) for
“three” substitute “6”.
23
After section 530 insert—
“530A
Condition as to distribution of profits: increase in profits after
10
delivery of tax return
(1)
Section 530(1) applies subject to subsection (2) below in relation to an
accounting period if—
(a)
the principal company of the group delivered with its tax
return for the period the financial statement under section
15
532(2)(b) showing the amount of the UK profits of the group
arising in the period, and
(b)
as at the relevant date, those profits have been increased from
the amount originally shown in the statement.
(2)
Any distribution of those profits made by the principal company
20
before the end of the relevant period is to be treated as having been
made within the deadline set by section 530(1)(c).
(3)
But the total amount of profits that may be treated as having been
distributed within that deadline by virtue of subsection (2) is limited
to 90% of the amount of the increase in profits.
25
(4)
In subsections (1) and (2) (and this subsection)—
“the relevant date” means the date on which the principal
company’s tax return can no longer be amended,
“the relevant period” means the period of 3 months beginning
with the relevant date, and
30
“UK profits” has the meaning given by section 530(2).
(5)
Section 530(4) applies subject to subsection (6) below in relation to an
accounting period if—
(a)
the company delivered its tax return for the period showing
the amount of the profits of its property rental business
35
arising in the period as calculated in accordance with section
599, and
(b)
as at the relevant date, those profits have been increased from
the amount originally shown in the return.
(6)
Any distribution of those profits made before the end of the relevant
40
period is to be treated as having been made within the deadline set
by section 530(4)(b).
(7)
But the total amount of profits that may be treated as having been
distributed within that deadline by virtue of subsection (6) is limited
to 90% of the amount of the increase in profits.
45

Finance (No. 4) Bill
Schedule 4 — Real estate investment trusts
195

(8)
In subsections (5) and (6) (and this subsection)—
“the relevant date” means the date on which the company’s tax
return can no longer be amended, and
“the relevant period” means the period of 3 months beginning
with the relevant date.
5
(9)
In this section “distribution” is to be read in accordance with section
530(6A) and (6B).”
24
In section 564 (breach of condition as to distribution of profits) omit
subsections (5) to (8).
25    (1)
Section 565 (which defines the amount to be charged to corporation tax
10
where there is a breach of the condition in section 530) is amended as
follows.
      (2)
In subsections (2) and (3), in the definition of “D”—
(a)
for “on or before” substitute “within”,
(b)
in paragraph (a) for “filing date referred to in” substitute “deadline
15
set by”, and
(c)
in paragraph (b) for “date specified” substitute “deadline set”.
      (3)
After subsection (3) insert—
“(4)
The definition of “D” in subsections (2) and (3) needs to be read with
section 530A (so far as applicable).”
20
26    (1)
The amendment made by paragraph 22 has effect in relation to distributions
made on or after the day on which this Act is passed.
      (2)
The amendments made by paragraphs 23 to 25 have effect for accounting
periods beginning on or after the day on which this Act is passed.
Being a UK REIT: conditions as to balance of business
25
27    (1)
Section 531 (conditions as to balance of business) is amended as follows.
      (2)
For subsection (5) substitute—
“(5)
Condition B is that at the beginning of the accounting period the sum
of—
(a)
the value of the assets relating to property rental business,
30
and
(b)
the value of the assets relating to residual business so far as
consisting of cash,

is at least 75% of the total value of assets held by the group or
company (as the case may be).”
35
      (3)
In subsection (6)(b) after “business” insert “(and the amount of the group’s
cash is to be determined accordingly)”.
      (4)
After subsection (7) insert—
“(8)
In this section “cash” means—
(a)
money held on deposit (whether or not in sterling),
40
(b)
stocks or bonds of any description included in Part 1 of
Schedule 11 to FA 1942 (gilts), or

Finance (No. 4) Bill
Schedule 4 — Real estate investment trusts
196

(c)
money held in any other way, or any investment of any other
form, specified in regulations made by the Commissioners
for Her Majesty’s Revenue and Customs.”
28
In section 547 (funds awaiting reinvestment) omit subsection (3).
29    (1)
Section 566 (breach of condition B in section 531 in accounting period 1) is
5
amended as follows.
      (2)
In subsection (2) omit the words from “but an amount of income” to the end.
      (3)
Omit subsections (3) to (6).
30
Omit section 567 (breach of condition B in section 531 in accounting period
1: meaning of “the notional amount”).
10
31
In section 568 (breach of balance of business conditions after accounting
period 1) in subsection (2)(b) for “value of the assets involved in property
rental business of the UK REIT in question” substitute “sum of the values
mentioned in section 531(5)(a) and (b)”.
32    (1)
The amendments made by paragraphs 27, 28 and 31 have effect for
15
accounting periods beginning on or after the day on which this Act is
passed.
      (2)
The amendments made by paragraphs 29 and 30 have effect in relation to a
breach of condition B in section 531 if accounting period 1 begins on or after
the day on which this Act is passed.
20
Abolition of entry charge
33    (1)
Omit sections 538 to 540 (entry charge).
      (2)
Sub-paragraph (1) does not affect the application of section 540 in relation to
a company if the date of entry is before the day on which this Act is passed.
34    (1)
In section 545 (cancellation of tax advantage) in subsection (5) omit the
25
words from “(and includes,” to “538)”.
      (2)
Sub-paragraph (1) does not affect the powers of an officer of Revenue and
Customs under section 545 in cases in which a company which is, or is a
member of, a UK REIT tries before the day on which this Act is passed to
obtain a tax advantage.
30
35    (1)
In section 556 (disposal of assets) omit subsection (4).
      (2)
Sub-paragraph (1) does not affect the application of subsection (4) in relation
to a company if entry is before the day on which this Act is passed.
36    (1)
In section 558 (demergers: disposal of asset) in subsection (4) omit “and
section 538 (entry charge)”.
35
      (2)
Sub-paragraph (1) has no effect in relation to cases in which the date
specified in the notice under section 523(1) is before the day on which this
Act is passed.
37
In section 559 (demergers: company leaving group UK REIT) in subsection
(8) omit “section 538 (entry charge),”.
40
38
In section 583 (overview of Chapter 10 relating to joint ventures) omit
subsection (4)(b).

Finance (No. 4) Bill
Schedule 4 — Real estate investment trusts
197

39
Omit sections 595 to 597 (additional entry charges in cases involving joint
ventures) and the italic heading before section 595.
Financing cost ratio
40    (1)
Section 543 (financing cost ratio) is amended as follows.
      (2)
In subsection (1) after “period” insert “(unless it is nil or a negative amount)”.
5
      (3)
For subsection (3) substitute—
“(3)
The excess is charged to corporation tax in relation to the accounting
period under the charge to corporation tax on income.
(3A)
“The excess” means—
(a)
the amount equal to—
10
(i)
PFC, minus
(ii)
the property financing costs which would cause the
calculation in subsection (2) to equal 1.25 for the
accounting period, or
(b)
if less, the amount equal to 20% of PP.”
15
41    (1)
Section 544 (meaning of “property financing costs” etc) is amended as
follows.
      (2)
In subsection (5) for “include” and paragraphs (a) to (e) substitute “are—
(a)
interest payable on borrowing,
(b)
amortisation of discounts relating to borrowing,
20
(c)
amortisation of premiums relating to borrowing,
(d)
the financing expense implicit in payments made under
finance leases, and
(e)
alternative finance return (as defined in sections 511 to 513 of
CTA 2009).”
25
      (3)
After subsection (5) insert—
“(6)
The Treasury may by regulations amend the list of matters in
subsection (5) by inserting, omitting or amending a description of a
matter.”
42
The amendments made by paragraphs 40 and 41 have effect for accounting
30
periods beginning on or after the day on which this Act is passed.
Disposal of assets
43    (1)
Section 556 (disposal of assets) is amended as follows.
      (2)
In subsection (1)—
(a)
omit the “and” after paragraph (a), and
35
(b)
after paragraph (b) insert “, and
(c)
if the company is a member of a UK REIT, the
disposal is not to another member of the UK REIT.”
      (3)
In subsection (3)—
(a)
omit the “and” after paragraph (b), and
40

Finance (No. 4) Bill
Schedule 5 — Tax treatment of financing costs and income
198

(b)
after paragraph (c) insert “, and
(d)
if the company is a member of a UK REIT, the
disposal is not to another member of the UK REIT.”
44
The amendments made by paragraph 43 have effect in relation to disposals
occurring on or after the day on which this Act is passed.
5
Schedule 5
Section 31

Tax treatment of financing costs and income
1
Part 7 of TIOPA 2010 (tax treatment of financing costs and income) is
amended as follows.
2
In section 262 (UK net debt of worldwide group for period of account of
10
worldwide group), in subsection (4), for “dormant (within the meaning of
section 1169 of the Companies Act 2006)” substitute “a dormant company”.
3
In section 276 (disallowance of deductions: appointment of authorised
company for relevant period of account), after subsection (2) insert—
“(2A)
In subsection (2), the reference to each company to which this
15
Chapter applies does not include a company that is a dormant
company throughout the relevant period of account.”
4
In section 280 (statement of allocated disallowances: requirements), after
subsection (5) insert—
“(5A)
An amount may not be specified in relation to a company under
20
subsection (4)(b) if it accrues at a time at which the company is not a
relevant group company.”
5
In section 288 (exemption of financing income: appointment of authorised
company for relevant period of account), after subsection (2) insert—
“(2A)
In subsection (2), the reference to each company to which this
25
Chapter applies does not include a company that is a dormant
company throughout the relevant period of account.”
6
In section 292 (statement of allocated exemptions: requirements), after
subsection (5) insert—
“(5A)
An amount may not be specified in relation to a company under
30
subsection (4)(b) if it accrues at a time at which the company is not a
UK group company.”
7
In section 296 (failure of reporting body to submit statement of allocated
exemptions), after subsection (2) insert—
“(2A)
Subsection (2) does not apply to a financing income amount if it
35
accrues to the company in question at a time when it is not a UK
group company.”