Corporation Tax Bill

House of Commons

Session 2009 - 10
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Corporation Tax Bill

Corporation Tax Bill
Part 12 — Real Estate Investment Trusts
Chapter 6 — Distributions
281

553
Meaning of “holder of excessive rights”
(1)
For the purposes of section 551 “holder of excessive rights” means a person
who meets—
(a)
condition A, and
(b)
either condition B or C.
5
(2)
Condition A is that the person—
(a)
is beneficially entitled (directly or indirectly) to at least 10% of the
dividends paid by the distributor,
(b)
is beneficially entitled (directly or indirectly) to at least 10% of the
distributor’s share capital, or
10
(c)
controls (directly or indirectly) at least 10% of the voting rights in the
distributor.
(3)
Condition B is that the person is a company.
(4)
Condition C is that—
(a)
the person is treated as a body corporate for tax purposes—
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(i)
in accordance with the law of a territory outside the United
Kingdom with which arrangements have been entered into to
provide relief from double taxation, or
(ii)
in accordance with an international agreement containing such
arrangements, and
20
(b)
those arrangements have effect by virtue of an Order in Council under
section 2 of TIOPA 2010.
(5)
In subsection (2) “the distributor” has the meaning given by section 551(2).
554
Regulations: distributions to holders of excessive rights
(1)
The Treasury may by regulations make provision of the kind mentioned in
25
subsection (2) for cases where—
(a)
the principal company of a group UK REIT, or
(b)
a company UK REIT,

makes a distribution to or in respect of a holder of excessive rights (as defined
by section 553).
30
(2)
The provision referred to in subsection (1) is—
(a)
provision that a charge does not arise, or is reduced, if the company
takes or does not take action of a specified kind;
(b)
a requirement for the company to provide the Commissioners for Her
Majesty’s Revenue and Customs with specified information relating to
35
the distribution and the persons to or in respect of whom it is made.

Corporation Tax Bill
Part 12 — Real Estate Investment Trusts
Chapter 7 — Gains etc
282

Chapter 7
Gains etc
Movement of assets
555
Assets: change of use
(1)
Subsection (2) applies if—
5
(a)
an asset has been used wholly and exclusively for the purposes of
property rental business of a company which is, or is a member of, a UK
REIT, and
(b)
the asset begins to be used (otherwise than by being disposed of in the
course of trade) wholly and exclusively for the purposes of residual
10
business of the company.
(2)
The asset is treated as having been at that time—
(a)
disposed of by the company so far as it carries on property rental
business, and
(b)
immediately reacquired by the company so far as it carries on residual
15
business.
(3)
The sale and reacquisition deemed under subsection (2) is to be treated as being
for a consideration equal to the market value of the asset.
(4)
For the purposes of CAA 2001—
(a)
a sale and reacquisition deemed under subsection (2)—
20
(i)
does not give rise to allowances or charges, and
(ii)
does not make it possible to make an election under section 198
or 199 of that Act (apportionment),
(b)
subsection (3) does not apply, and
(c)
anything done by or to the company so far as it carries on property
25
rental business before the deemed sale and reacquisition is to be treated
after the deemed sale and reacquisition as having been done by or to
the company so far as it carries on residual business.
(5)
If a percentage of the gains of property rental business of a member of a group
UK REIT is excluded from a financial statement in accordance with section
30
533(3), that percentage of those gains is to be treated for corporation tax
purposes as gains of the member’s residual business.
(6)
This section has effect in relation to a non-UK member of a group UK REIT as
if references to property rental business were references to UK property rental
business.
35
(7)
Section 535 is relevant to the tax treatment of any gain arising to a company
under this section.
556
Disposal of assets
(1)
Subsection (2) applies if—
(a)
an asset has been used wholly and exclusively for the purposes of
40
property rental business of a company which is, or is a member of, a UK
REIT, and

Corporation Tax Bill
Part 12 — Real Estate Investment Trusts
Chapter 7 — Gains etc
283

(b)
the asset is disposed of in the course of trade for the purposes of
residual business of the company.
(2)
If this subsection applies—
(a)
the deemed sale and reacquisition under section 536(2) is to be ignored,
and
5
(b)
the asset is to be treated as having been disposed of in the course of the
company’s residual business.
(3)
Subsection (2) is to be taken to apply in particular if—
(a)
a property acquired by a company which is, or is a member of, a UK
REIT has been developed since acquisition,
10
(b)
the cost of the development exceeds 30% of the fair value of the
property (determined in accordance with international accounting
standards) at entry or at acquisition, whichever is later, and
(c)
the company disposes of the property within the period of 3 years
beginning with the completion of the development.
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(4)
If subsection (2) applies in relation to an asset held at entry, the company may
make a claim for repayment of a proportion of the tax paid under section 538
(entry charge) calculated as follows—

where—
AMV means market value of the asset at entry,
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MV has the same meaning as in section 539(3), and
TP means tax paid under section 538.
(5)
If a percentage of the gains of property rental business of a member of a group
UK REIT is excluded from a financial statement in accordance with section
533(3), that percentage of those gains is to be treated for corporation tax
25
purposes as gains of the member’s residual business.
(6)
This section has effect in relation to a non-UK member of a group UK REIT as
if references to property rental business were references to UK property rental
business.
(7)
Section 535 is relevant to the tax treatment of any gain arising to a company
30
under this section.
557
Movement of assets into ring fence
(1)
Subsection (2) applies if—
(a)
an asset has been used wholly and exclusively for the purposes of
residual business of a company which is, or is a member of, a UK REIT,
35
and
(b)
the asset begins to be used wholly and exclusively for the purposes of
the company so far as it carries on property rental business.
(2)
The asset is to be treated as having been at that time—
(a)
disposed of by the company so far as it carries on residual business, and
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Corporation Tax Bill
Part 12 — Real Estate Investment Trusts
Chapter 7 — Gains etc
284

(b)
immediately reacquired by the company so far as it carries on property
rental business.
(3)
The sale and reacquisition deemed under subsection (2) is to be treated as being
for a consideration equal to the market value of the asset.
(4)
For the purposes of CAA 2001—
5
(a)
a sale and reacquisition deemed under subsection (2)—
(i)
does not give rise to allowances or charges, and
(ii)
does not make it possible to make an election under section 198
or 199 of that Act (apportionment),
(b)
subsection (3) does not apply, and
10
(c)
anything done by or to the company so far as it carries on residual
business before the deemed sale and reacquisition is to be treated after
the deemed sale and reacquisition as having been done by or to the
company so far as it carries on property rental business.
(5)
If a percentage of the gains of property rental business of a member of a group
15
UK REIT is excluded from a financial statement in accordance with section
533(3), that percentage of those gains is to be treated for corporation tax
purposes as gains of the member’s residual business.
(6)
This section has effect in relation to a non-UK member of a group UK REIT as
if references to property rental business were references to UK property rental
20
business.
(7)
Section 535 is relevant to the tax treatment of any gain arising to a company
under this section.
Demergers
558
Demergers: disposal of asset
25
(1)
This section applies in the case of a company UK REIT if—
(a)
the company (“C”) disposes of an asset involved in its property rental
business to a 75% subsidiary (“S”) of C,
(b)
C (so far as it carries on residual business) disposes of its interest in S to
another company (“P”),
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(c)
on the date when P acquires the interest in S, P gives a notice under
section 523 specifying a date that falls within the post-disposal period,
and
(d)
the group of which S is a member becomes a group UK REIT from the
specified date.
35
(2)
“The post-disposal period” means the period of 6 months beginning with the
date of the disposal of the asset by C.
(3)
P may give a notice under section 523 in accordance with subsection (1)(c) even
if it does not expect to meet conditions C to F in section 528 throughout
accounting period 1.
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(4)
Sections 536 and 537 (effects of entry) and section 538 (entry charge) do not
apply to the group of which S is a member—
(a)
in relation to the asset disposed of by C, or
(b)
in relation to business conducted by the exploitation of that asset.

Corporation Tax Bill
Part 12 — Real Estate Investment Trusts
Chapter 7 — Gains etc
285

(5)
Sections 555 and 556 (movement of assets out of ring fence) do not apply to the
disposal of the asset by C.
(6)
But if, at the end of the post-disposal period, conditions C to F in section 528
are not met in relation to P, subsections (4) and (5) are to be treated as not
having had effect.
5
559
Demergers: company leaving group UK REIT
(1)
This section applies in relation to a company if each of conditions A to D is met.
(2)
Condition A is that the company (“the exiting company”) ceases to be a
member of a group UK REIT (“Group 1”).
(3)
Condition B is that at the time immediately after it ceases to be a member of
10
Group 1—
(a)
the exiting company is a member of another group (“Group 2”) and—
(i)
the principal company of Group 2 meets conditions A and B in
section 528,
(ii)
Group 2 has property rental business in relation to which
15
conditions A and B in section 529 are met,
(iii)
the condition in section 530 is met in relation to the principal
company of Group 2, and
(iv)
Group 2 meets conditions A and B in section 531, or
(b)
the exiting company—
20
(i)
meets conditions A and B in section 528,
(ii)
has property rental business in relation to which conditions A
and B in section 529 are met, and
(iii)
meets the condition in section 530 and conditions A and B in
section 531.
25
(4)
Condition C is that—
(a)
in a case within subsection (3)(a), the principal company of Group 2
gives a notice under section 523 no later than the date on which the
exiting company ceases to be a member of Group 1, and
(b)
in a case within subsection (3)(b), the exiting company gives a notice
30
under section 524 no later than the date on which it ceases to be a
member of Group 1.
(5)
Condition D is that the date specified in the notice under section 523 or 524 (as
the case may be) is the same as that on which the exiting company ceases to be
a member of Group 1.
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(6)
A company may give a notice under section 523 or 524 in accordance with
subsection (4) even if it does not expect to meet conditions C to F in section 528
throughout accounting period 1.
(7)
If this section applies, the exiting company is to be treated as a member of a
group UK REIT (or as a company UK REIT) during the period of 6 months
40
beginning with the time when it ceases to be a member of Group 1.
(8)
If this section applies, the following provisions do not have effect—
sections 536 and 537 (effects of entry),
section 538 (entry charge), and
sections 579 and 580 (effects of cessation).
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Corporation Tax Bill
Part 12 — Real Estate Investment Trusts
Chapter 8 — Breach of conditions in Chapter 2
286

(9)
But if, at the end of the period of 6 months mentioned in subsection (7)
conditions C to F in section 528 are not met in relation to the principal company
of Group 2 or the exiting company (as the case may be)—
(a)
this section does not apply, and
(b)
the exiting company is to be treated as having ceased to be a member of
5
a group UK REIT (or a company UK REIT) on the date on which it
ceased to be a member of Group 1.
Interpretation
560
Interpretation of Chapter
This Chapter (other than section 559) is to be read as if it were contained in
10
TCGA 1992.
Chapter 8
Breach of conditions in Chapter 2
561
Notice of breach of relevant Chapter 2 condition
(1)
The principal company of a group UK REIT must notify an officer of Revenue
15
and Customs as soon as reasonably practicable if a relevant Chapter 2
condition ceases to be met in relation to the principal company or (as the case
may be) the group.
(2)
A company UK REIT must notify an officer of Revenue and Customs as soon
as is reasonably practicable if a relevant Chapter 2 condition ceases to be met
20
in relation to the company.
(3)
Each of the following is a “relevant Chapter 2 condition”—
conditions C and D in section 528 (conditions for company),
conditions A and B in section 529 (property rental business),
the condition in section 530 (distribution of profits), and
25
conditions A and B in section 531 (balance of business).
(4)
A notification under subsection (1) or (2) must include—
(a)
the date on which the condition first ceased to be met and the date (if
any) on which it was met again,
(b)
a description of the breach, and
30
(c)
details of the steps (if any) taken by the company to prevent a
recurrence of the breach.
562
Breach of conditions C and D in section 528 (conditions for company)
(1)
This section makes provision about cases relating to breaches of condition C or
D in section 528 (or of both those conditions) in relation to—
35
(a)
the principal company of a group UK REIT, or
(b)
a company UK REIT.
(2)
If both conditions C and D are not met—
(a)
as a result of the principal company of a group UK REIT becoming a
member of another group UK REIT, or
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Corporation Tax Bill
Part 12 — Real Estate Investment Trusts
Chapter 8 — Breach of conditions in Chapter 2
287

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

the breaches are to be ignored.
(3)
If—
(a)
condition D is not met as a result of anything done (or not done) by a
5
person other than the company in question, and
(b)
the company remedies the breach not later than the end of the
accounting period after that in which the breach began,

the breach is to be ignored.
(4)
But if, in a case within subsection (3), the breach of condition D is not remedied
10
by the time mentioned in that subsection, 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
accounting period in which the breach began.
(5)
If—
(a)
either condition C or D is not met in relation to an accounting period,
15
and
(b)
the case is not one within subsection (2) or (3),

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.
563
Breach of conditions as to property rental business
20
(1)
Subsection (2) applies if condition A or B in section 529 (property rental
business) is not met in the case of a UK REIT throughout an accounting period
of—
(a)
in the case of a group UK REIT, the principal company of the group,
and
25
(b)
in the case of a company UK REIT, the company.
(2)
The breach is to be ignored.
564
Breach of condition as to distribution of profits
(1)
Subsection (2) applies if the condition in section 530 (distribution of profits) is
not met in relation to an accounting period.
30
(2)
The breach is to be ignored; but the amount given by section 565 (“the section
565 amount”) is charged to corporation tax under the charge to corporation tax
on income.
(3)
The section 565 amount is to be treated as profits of residual business—
(a)
of the principal company of the group UK REIT, or
35
(b)
of the company UK REIT,

as the case may be.
(4)
Accordingly it is charged to corporation tax at the rate mentioned in section
534(3) (rate at which profits of residual business are charged).
(5)
No charge to corporation tax arises under subsection (2) if—
40
(a)
a distribution by way of dividend is made by the principal company or
(as the case may be) by the company,
(b)
the distribution is made within the relevant period, and