Finance (No.2) Bill

House of Commons

Session 2005 - 06
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Finance (No.2) Bill

Finance (No.2) Bill
Schedule 16 — Real Estate Investment Trusts: excluded business and income
Part 2 — Classes of income or profit
349

Schedule 16
Section 104

Real Estate Investment Trusts: excluded business and income
Part 1
Classes of business
1     (1)
Incidental letting of property (whether in the United Kingdom or outside)
5
which is held in connection with a property development trade.
      (2)
In sub-paragraph (1) “property development” means the development of
land with the sole or main object of realising a gain from the disposal of an
interest in the land.
2
Letting of property which is held for use for administrative purposes in
10
carrying on property rental business but is temporarily surplus to
requirements for those purposes, provided that—
(a)
the space let is comparatively small compared to the space occupied
for administrative purposes, and
(b)
the letting is for a term of not more than three years.
15
3
The provision of services in connection with property outside the United
Kingdom where the services would not fall within Schedule A if provided
in connection with property in the United Kingdom.
4
Entering into finance agreements to which sections 43A to 43G of ICTA
apply (rent factoring).
20
Part 2
Classes of income or profit
5
All income in connection with the operation of a caravan site, if section 20(1)
of ITTOIA 2005 (caravan sites) would apply in respect of any receipts in
connection with the operation of the site.
25
6
Rent in respect of an electric-line wayleave.
7
Rent in respect of the siting of a pipeline for gas.
8
Rent in respect of the siting of a pipeline for oil.
9
Rent in respect of the siting of a mast or similar structure designed for use in
a mobile telephone network or other system of electronic communication.
30
10
Rent in respect of the siting of a wind turbine.
11
Dividends from shares in a company to which this Part of this Act applies.
12
Income arising out of an interest in a limited liability partnership where
section 118ZA(4) of ICTA (winding-up) applies.

Finance (No.2) Bill
Schedule 17 — Group Real Estate Investment Trusts: modifications
350

Part 3
Power to amend
13
The Commissioners for Her Majesty’s Revenue and Customs may by
regulations—
(a)
add a paragraph to Part 1 or 2 of this Schedule,
5
(b)
amend a paragraph of Part 1 or 2 of this Schedule, or
(c)
repeal a paragraph of Part 1 or 2 of this Schedule.
Schedule 17
Section 134

Group Real Estate Investment Trusts: modifications
Introduction
10
1
This Schedule sets out the modifications of Part 4 in its application to groups.
2
In this Schedule, in relation to a group—
(a)
“G (pre-entry)” means the group before Part 4 begins to apply to it,
(b)
“G (property rental business)” means the group in so far as it carries
on property rental business which satisfies Conditions 1 to 3 of
15
section 107 (as modified by paragraph 6 below) while Part 4 applies
to it,
(c)
“G (residual)” means the group in so far as it carries on other
business while Part 4 applies to it, and
(d)
“G (post-cessation)” means the group after Part 4 has ceased to apply
20
to it.
3     (1)
A reference in this Schedule to a UK resident company is a reference to a
company which—
(a)
is resident in the United Kingdom, and
(b)
is not resident in another place in accordance with the law of that
25
place relating to taxation.
      (2)
A reference in this Schedule to UK profits of a group is a reference to—
(a)
amounts shown in the financial statements of G (property rental
business) as profits of UK resident members of the group, and
(b)
amounts shown in the financial statements of G (property rental
30
business) as profits of business in the United Kingdom of other
members.
      (3)
A reference to UK business of a group is a reference to—
(a)
the business of UK resident members of the group, and
(b)
business in the United Kingdom of other members.
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General modification
4
Except where the context otherwise requires and subject to the provisions of
this Schedule, a reference to a company shall be treated as a reference to a
group.

Finance (No.2) Bill
Schedule 17 — Group Real Estate Investment Trusts: modifications
351

Conditions
5     (1)
In section 106 a reference to a company shall be treated as a reference to the
principal company.
      (2)
The requirement in section 106(2) shall be treated as including a requirement
that the principal company prepare for the accounting period, and submit to
5
the Commissioners for Her Majesty’s Revenue and Customs, financial
statements in accordance with paragraph 31 (“the financial statements”).
6     (1)
For the purposes of section 107(1) the property rental businesses of the
members of the group shall be treated as a single business.
      (2)
For section 107(7)(a) substitute—
10
“(a)
the members of the group shall be treated as a single
company, and
(aa)
if the shares of a member of the group are stapled to the
shares of another company, the stapled company and the
members of the group shall be treated as a single company,”.
15
      (3)
For section 107(8) substitute—
“(8)
Condition 4 is that at least 90% of the UK profits of the property
rental business arising in the accounting period are distributed—
(a)
by the principal company,
(b)
by way of dividend, and
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(c)
on or before the filing date for the principal company’s tax
return for the accounting period (see paragraph 14 of
Schedule 18 to FA 1998);

and for the purposes of this Condition “UK profits” means amounts
shown in the financial statements of G (property rental business) as
25
profits of UK resident members of the group.”
      (4)
In the application of section 107(9) compliance with Condition 4 shall be
treated as unlawful in so far as—
(a)
the Condition applies to the profits of the property rental business
attributable to a member, and
30
(b)
compliance with the Condition by the member would (if the
Condition applied to it) be unlawful as described in section
107(9)(a)(i) or (ii).
7
In the application of section 108—
(a)
the aggregate amount shown in the financial statement as profits of
35
members of G (property rental business), calculated in accordance
with international accounting standards, shall be treated as the
amount of the income accruing from tax-exempt business,
(b)
the aggregate amount shown in the financial statements as the
amount of the profits of members of G (residual) shall be treated as
40
the amount of the income accruing from non-tax-exempt business,
(c)
the amount shown in the financial statements as the amount of the
assets of G (property rental business) shall be treated as the amount
of the assets involved in tax-exempt business, and
(d)
the amount shown in the financial statements as the amount of the
45
assets of G (residual) shall be treated as the amount of the assets
involved in non-tax-exempt business.

Finance (No.2) Bill
Schedule 17 — Group Real Estate Investment Trusts: modifications
352

Entering Real Estate Investment Trust Regime
8     (1)
A notice under section 109 must be given by the principal company.
      (2)
For the purposes of the requirement under section 109(2)(c) a reference to the
company shall be treated as a reference to the principal company.
9     (1)
In section 111(1) a reference to C (pre-entry) shall be treated as a reference to
5
a UK resident member of G (pre-entry).
      (2)
Section 111(2) shall have effect in relation to each UK resident company
which is a member of the group; and for that purpose—
(a)
a reference to C (pre-entry) (in subsection (2) or (4)) shall be treated
as a reference to the company as a member of G (pre-entry), and
10
(b)
a reference to C (tax-exempt) (in subsection (2) or (4)) shall be treated
as a reference to the company as a member of G (property rental
business).
      (3)
In section 111(5) the reference to the company shall be treated as a reference
to each UK resident member.
15
      (4)
Where a percentage of the assets of a member of G (property rental business)
is excluded from a financial statement in accordance with paragraph 31(5),
the excluded percentage shall be disregarded for the purposes of section 111.
10    (1)
If a UK resident company becomes a member of a group to which Part 4
applies, section 111 shall apply to the company as if—
20
(a)
references to entry were references to becoming a member of the
group,
(b)
references to C (pre-entry) were references to the company before
becoming a member of the group, and
(c)
references to C (tax-exempt) were references to the company as a
25
member of G (property rental business).
      (2)
Where a percentage of the assets of the company would be excluded from a
financial statement in accordance with paragraph 31(5), the percentage
which would be excluded shall be disregarded in applying section 111 to the
company.
30
11    (1)
In the application of section 112—
(a)
a reference to a company to which Part 4 applies shall be treated as a
reference to each member of a group to which Part 4 applies,
(b)
a reference to C (residual) shall be treated as a reference to the
company as a member of G (residual),
35
(c)
in subsection (3) the reference to assets treated as sold and re-
acquired under section 111(2) shall be construed in accordance with
paragraph 9(4) or 10(2), and
(d)
the section shall apply to non-UK resident members—
(i)
as if section 111 applied to UK property rental business
40
(within the meaning given by paragraph 32(1)) carried on by
them,
(ii)
as if a reference to a charge to corporation tax under Case VI
of Schedule D were a reference to a charge to income tax, and
(iii)
as if a reference to the rate at which the company pays tax on
45
income were, where relevant, a reference to the rate at which

Finance (No.2) Bill
Schedule 17 — Group Real Estate Investment Trusts: modifications
353

the company would pay tax on the notional income if it were
the highest part of the company’s income.
      (2)
Where a company joins a group to which Part 4 applies, section 112 shall
apply to the company as if joining the group amounted to becoming a
company to which Part 4 applies (but with a reference to C (residual) being
5
treated as a reference to the company as a member of G (residual)).
12    (1)
Section 113(1) to (4) shall apply in relation to G (property rental business), G
(pre-entry), G (residual) and G (post-cessation) as they apply in relation to C
(tax-exempt), C (pre-entry), C (residual) and C (post-cessation).
      (2)
Section 113(1) to (6) shall also apply in relation to each UK resident company
10
which is a member of the group; for which purpose—
(a)
a reference to C (tax-exempt) is a reference to the company if or in so
far as it is a member of G (property rental business),
(b)
a reference to C (pre-entry) is a reference to the company as a
member of G (pre-entry) (or, in the case of a company which joins a
15
group to which Part 4 applies, a reference to the company before
joining),
(c)
a reference to C (residual) is a reference to the company if or in so far
as it is a member of G (residual), and
(d)
a reference to C (post-cessation) is a reference to the company as a
20
member of G (post-cessation) (or, in the case of a company which
leaves a group to which Part 4 applies, a reference to the company
after leaving).
      (3)
Where a percentage of the profits of a member of G (property rental
business) is excluded from a financial statement in accordance with
25
paragraph 31(5), the excluded percentage shall be treated for the purposes
of section 113 as profits of G (residual).
13
Regulations under section 114 may make provision in relation to a group to
which Part 4 applies as if references to the company were references to the
principal company.
30
14
Section 115 shall apply as if for subsection (2) there were substituted—
“(2)
That sum is—

where—
(a)
Profits means the aggregate of the UK profits of G (property
rental business) arising in the accounting period as set out in
35
the financial statement under paragraph 31(2)(b) (before the
offset of capital allowances),
(b)
Financing Costs (all) means the amount of the financing costs
incurred in respect of the property rental business of G
(property rental business) as set out in the financial statement
40
under paragraph 31(2)(b), and
(c)
Financing Costs (external) means the amount of the financing
costs incurred in respect of the UK business of G (property

Finance (No.2) Bill
Schedule 17 — Group Real Estate Investment Trusts: modifications
354

rental business), excluding financing costs owed by one
member of G (property rental business) to another, as set out
in the financial statement under paragraph 31(2)(a).”
Assets, etc
15    (1)
In section 117(1) the reference to the company shall be treated as a reference
5
to a member of the group.
      (2)
An appeal under section 117(6) may be made by the member of the group on
which the assessment is made.
16
Section 118 shall apply as if—
(a)
a reference to C (residual) were a reference to G (residual), and
10
(b)
a reference to C (tax-exempt) were a reference to G (property rental
business).
Profits
17    (1)
Section 119 shall apply only in relation to each UK resident company which
is a member of the group; for which purpose—
15
(a)
a reference to C (tax-exempt) is a reference to the company if or in so
far as it is a member of G (property rental business), and
(b)
a reference to C (residual) is a reference to the company if or in so far
as it is a member of G (residual).
      (2)
Where a percentage of the profits of a member of G (property rental
20
business) is excluded from a financial statement in accordance with
paragraph 31(5), the excluded percentage shall be treated for the purposes
of corporation tax as profits of the member in so far as it is a member of G
(residual).
18    (1)
In the application of section 121(1)—
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(a)
the reference to a company to which Part 4 applies shall be treated as
a reference to the principal company of a group to which Part 4
applies, and
(b)
the reference to the profits of C (tax-exempt) shall be treated as a
reference to amounts shown in the financial statements of G
30
(property rental business) as—
(i)
the profits of the UK resident members of the group, and
(ii)
gains accruing to UK resident members of the group.
      (2)
In section 121(5) the reference to a company to which Part 4 applies shall be
treated as a reference to the principal company of a group to which Part 4
35
applies.
      (3)
In the application of section 121(8)—
(a)
for paragraph (a) substitute—
“(a)
the reference to the principal company of a group to
which this Part applies includes a reference to the
40
principal company of G (post-cessation),” and
(b)
disregard paragraph (b).
19    (1)
In the application of section 122(1)(a)—

Finance (No.2) Bill
Schedule 17 — Group Real Estate Investment Trusts: modifications
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(a)
the reference to a company to which Part 4 applies shall be treated as
a reference to the principal company of a group to which Part 4
applies, and
(b)
the reference to profits of a company’s tax-exempt business shall be
treated as a reference to amounts shown in the financial statements
5
of G (property rental business) as—
(i)
the profits of the UK resident members of the group, and
(ii)
gains accruing to UK resident members of the group.
      (2)
In the application of section 122(2)(n), (o) and (p) a reference to a company
shall be treated as a reference to the principal company.
10
      (3)
In the application of section 122 disregard subsection (5).
20
In the application of section 123—
(a)
the reference to a company to which Part 4 applies shall be treated as
a reference to the principal company of a group to which Part 4
applies, and
15
(b)
the reference to C (tax-exempt) shall be treated as a reference to a
member of G (property rental business).
Capital gains
21    (1)
Sections 124 to 126 shall apply only in relation to each UK resident company
which is a member of the group; for which purpose—
20
(a)
a reference to C (tax-exempt) is a reference to the company if or in so
far as it is a member of G (property rental business), and
(b)
a reference to C (residual) is a reference to the company if or in so far
as it is a member of G (residual).
      (2)
Where a percentage of the gains of a member of G (property rental business)
25
is excluded from a financial statement in accordance with paragraph 31(5),
the excluded percentage shall be treated for the purposes of corporation tax
as gains of the member in so far as it is a member of G (residual).
22
In the application of section 125(7) a reference to the company shall be
treated as a reference to a member of the group.
30
Leaving Real Estate Investment Trust Regime
23
In sections 128 to 130 a reference to the giving of a notice by or to a company
shall be treated as a reference to the giving of a notice by or to the principal
company.
24
An appeal under section 129(6) may be made by the principal company.
35
25    (1)
Section 131 shall apply in relation to each UK resident company which is a
member of the group; for which purpose—
(a)
a reference to C (tax-exempt) is a reference to the company if or in so
far as it is a member of G (property rental business),
(b)
a reference to C (residual) is a reference to the company if or in so far
40
as it is a member of G (residual), and
(c)
a reference to C (post-cessation) is a reference to the company as a
member of G (post-cessation).