Finance Bill (HC Bill 49)

(b) condition D in section 528 is not met in relation to the UK
REIT, and

(c) the first 3-year period in relation to the UK REIT has not
ended.

(3) 5Neither subsection (1)(a) nor subsection (2)(b) covers cases in which
condition D in section 528 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

(b) a company UK REIT becoming a member of a group UK
10REIT.

(4) Subsection (5) applies if—

(a) a company ceases to carry on a business (“the transferred
business”) which it carried on at a time (“the relevant time”)
when subsection (2) applied to the company, and

(b) 15another company (“company X”) begins to carry on the
transferred business.

In paragraph (a) the reference to a business includes a part of a
business.

(5) Subsection (2) is to be taken to have applied at the relevant time to
20the following companies—

(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
25it).

(6) In this section “the first 3-year period” has the meaning given by
section 527(8).

(7) If a notice is given under section 572(1) in a case within this section,
subsection (8) applies instead of section 572(4)(a).

(8) 30The 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

(b) such later day as may be specified by the officer of Revenue
and Customs in the notice.”

12 (1) 35Section 577 (multiple breaches of conditions in Chapter 2) is amended as
follows.

(2) In subsection (5)(a) for “section 562(2) and (3)” substitute “section 562A(6)”.

(3) In subsection (7)—

(a) in paragraph (b) omit “or D” and “or (5) to (7)”, and

(b) 40in paragraph (c) for “C to F” substitute “C, E and F”.

(4) After subsection (7) insert—

“(8) In accordance with section 527(6) and (7), a breach of condition D in
section 528 during the first 3-year period (as defined in section
527(8)) is also to be ignored for the purposes of this section.”

13 (1) The amendments made by paragraph 2 have effect in relation to notices
given under section 523 or 524 specifying a date which is on or after the day
on which this Act is passed.

(2) The amendments made by paragraphs 3 to 12 have effect in relation to—

(a) 5groups of companies in respect of which notices are given under
section 523 specifying a date which is on or after the day on which
this Act is passed, and

(b) companies which give notices under section 524 specifying a date
which is on or after the day on which this Act is passed.

(3) 10The amendments made by paragraph 4 also have effect in relation to—

(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, and

(b) companies which give notices under section 524 specifying a date
15which is before the day on which this Act is passed,

for accounting periods beginning on or after the day on which this Act is
passed (including, in relation to a breach beginning in an accounting period
beginning before that day, for the purpose of determining under section
562(3) whether the breach is remedied in an accounting period beginning on
20or after that day).

Being a UK REIT: conditions for company - trading of shares on recognised stock exchange

14 In section 527 (being a UK REIT in relation to an accounting period) in
subsections (2) and (3) after paragraph (a) insert—

“(aa) the condition in section 528A (further condition relating to
25shares) must be met in relation to the period,”.

15 In section 528 (conditions for company) in subsection (3) for “listed”
substitute “admitted to trading”.

16 After section 528 insert—

“528A Further condition relating to shares

(1) 30In the case of a group UK REIT, the condition in this section is met in
relation to an accounting period if—

(a) throughout the accounting period, the shares forming the
principal company’s ordinary share capital meet the
requirement of section 1137(2)(b) (definition of “listed” in
35relation to shares), or

(b) during the accounting period, shares forming part of the
principal company’s ordinary share capital are traded on a
recognised stock exchange.

(2) In the case of a company UK REIT, the condition in this section is met
40in relation to an accounting period if—

(a) throughout the accounting period, the shares forming the
company’s ordinary share capital meet the requirement of
section 1137(2)(b) (definition of “listed” in relation to shares),
or

(b) 45during the accounting period, shares forming part of the
company’s ordinary share capital are traded on a recognised
stock exchange.

(3) This section is subject to section 528B.

528B Relaxation of section 528A condition for accounting periods 1 to 3

(1) This section relaxes the requirements of section 528A in relation to
accounting period 1, accounting period 2 and accounting period 3.

(2) 5In the case of a group UK REIT, the condition in section 528A is met
in relation to accounting period 1, accounting period 2 and
accounting period 3 if—

(a) at the end of the relevant period, the shares forming the
principal company’s ordinary share capital meet the
10requirement of section 1137(2)(b) (definition of “listed” in
relation to shares), or

(b) during the relevant period, shares forming part of the
principal company’s ordinary share capital are traded on a
recognised stock exchange.

(3) 15In the case of a company UK REIT, the condition in section 528A is
met in relation to accounting period 1, accounting period 2 and
accounting period 3 if—

(a) at the end of the relevant period, the shares forming the
company’s ordinary share capital meet the requirement of
20section 1137(2)(b) (definition of “listed” in relation to shares),
or

(b) during the relevant period, shares forming part of the
company’s ordinary share capital are traded on a recognised
stock exchange.

(4) 25In this section—

• “accounting period 2” means the accounting period following
  accounting period 1,

• “accounting period 3” means the accounting period following
  accounting period 2, and

• 30“the relevant period” means the period consisting of accounting
  period 1, accounting period 2 and accounting period 3.”

17 In section 561 (notice of breach of relevant Chapter 2 condition) in subsection
(3) before “conditions A and B in section 529” insert—

“(None) the condition in section 528A (further condition relating to
35shares),”.

18 Before section 563 insert—

“562B Breach of further condition relating to shares

(1) Subsection (2) applies if the condition in section 528A (further
condition relating to shares) is not met in relation to an accounting
40period.

(2) The group or company (as the case may be) is to be treated as having
ceased to be a UK REIT at the end of the previous accounting period.

(3) But subsection (2) does not apply if the condition is not met as a
result of—

(a) 45the principal company of a group UK REIT becoming a
member of another group UK REIT, or

(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 5 Breach of further condition relating to shares in accounting periods 1,
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) 10The group or company (as the case may be) is to be treated as having
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
15member of another group UK REIT, or

(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
20the same meaning as in section 528B.”

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 25Before section 574 insert—

“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
30shares) would not be met in relation to an accounting period
(“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
35relaxation of the condition in section 528A in relation to 3 or more
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
40shares) would not be met in relation to an accounting period
(“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).

(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
5section 528A would not be met but for section 528B, or

(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
10benefits from the relaxation of the condition in section 528A is the
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) 15the principal company of a group UK REIT becoming a
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) 20a company ceases to carry on a business (“the transferred
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
25transferred business.

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
30accounting period in question—

(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
35it).

(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) 40the first day of accounting period 1, or

(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
45is passed.

(2) Sections 528B, 562C and 573B have no effect in relation to—

(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
5which is before the day on which this Act is passed.

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 10 Condition as to distribution of profits: increase in profits after
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
15return for the period the financial statement under section
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) 20Any distribution of those profits made by the principal company
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
25to 90% of the amount of the increase in profits.

(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
  30with the relevant date, and

• “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
35the amount of the profits of its property rental business
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) 40Any distribution of those profits made before the end of the relevant
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
45to 90% of the amount of the increase in profits.

(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
  5with the relevant date.

(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) 10Section 565 (which defines the amount to be charged to corporation tax
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) 15in paragraph (a) for “filing date referred to in” substitute “deadline
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
20section 530A (so far as applicable).”

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.

25Being a UK REIT: conditions as to balance of business

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) 30the value of the assets relating to property rental business,
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
35company (as the case may be).”

(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) 40money held on deposit (whether or not in sterling),

(b) stocks or bonds of any description included in Part 1 of
Schedule 11 to FA 1942 (gilts), or

(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) 5Section 566 (breach of condition B in section 531 in accounting period 1) is
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
101: meaning of “the notional amount”).

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) 15The amendments made by paragraphs 27, 28 and 31 have effect for
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
20the day on which this Act is passed.

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) 25In section 545 (cancellation of tax advantage) in subsection (5) omit the
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
30obtain a tax advantage.

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
35section 538 (entry charge)”.

(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
40(8) omit “section 538 (entry charge),”.

38 In section 583 (overview of Chapter 10 relating to joint ventures) omit
subsection (4)(b).

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) 5In subsection (1) after “period” insert “(unless it is nil or a negative amount)”.

(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) 10the amount equal to—

(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) 15if less, the amount equal to 20% of PP.”

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) 20amortisation of discounts relating to borrowing,

(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
25CTA 2009).”

(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 30The amendments made by paragraphs 40 and 41 have effect for accounting
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) 35omit the “and” after paragraph (a), and

(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) 40omit the “and” after paragraph (b), and

(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
5occurring on or after the day on which this Act is passed.

Section 31

SCHEDULE 5 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 10In section 262 (UK net debt of worldwide group for period of account of
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) 15In subsection (2), the reference to each company to which this
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) 20An amount may not be specified in relation to a company under
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) 25In subsection (2), the reference to each company to which this
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) 30An amount may not be specified in relation to a company under
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) 35Subsection (2) does not apply to a financing income amount if it
accrues to the company in question at a time when it is not a UK
group company.”