Chapter 1: Introduction
Section 518: Introduction to Part
1593.This section is an overview of the Part. It is based on section 103 of FA 2006.
1594.Subsection (1) sets out the “bargain” which is entered into by a group of companies on becoming a UK REIT. If the group meets certain conditions it benefits from an exemption from corporation tax (and, through the operation of section 520(3), an exemption from income tax for non-UK companies) for profits and gains of property rental business. This benefit comes with the following liabilities:
an entry charge (section 538),
a requirement that the principal company of a group deducts sums representing income tax in respect of distributions made to shareholders (section 973 of ITA and SI 2009/2036), and
the treatment of such distributions as profits of a UK property business rather than dividend incomein the hands of shareholders (section 548).
1595.Subsection (2) makes similar provision for companies which enter the UK REIT regime other than as part of a group.
1596.Subsection (3) contains signposts to the remaining Chapters of the Part.
1597.Subsection (4) defines “UK REIT”.
Section 519: “Property rental business”
1598.This section defines “property rental business” for the purposes of the Part. It is based on section 104 of, and paragraph 32(2) of Schedule 17 to, FA 2006.
1599.Subsection (1) defines “property rental business”.
1600.Subsection (4) provides that, for non-UK companies, business is “property rental business” if it would be property rental business if carried on by a UK company. See section 521 for the definitions of UK company and non-UK company. This provision ensures that the worldwide property rental business of a non-UK company is treated as property rental business for the purposes of the Part.
1601.The definition of “tax-exempt business” in section 107(2) of FA 2006 is not rewritten. Instead reference is made to “property rental business” throughout the Act. This is because “tax-exempt business” suggests that the company must carry on such a business to be within the regime. But sections 563 and 564 allow a company to breach the conditions in section 529 or 530 and remain within the regime.
Section 520: “UK property rental business” of non-UK companies
1602.This section defines “UK property rental business” of non-UK companies and treats profits of such business, which would ordinarily be charged to income tax, as chargeable to corporation tax. It is based on paragraph 32(1), (3) and (5) of Schedule 17 to FA 2006.
1603.Subsection s (2) and (3) provide that profits of UK property rental business of non-UK companies (including non-UK joint venture companies) which are subject to income tax under Chapter 3 of Part 3 of ITTOIA are to be treated as being subject to corporation tax (and not income tax).
1604.Subsections (2) and (3)(a) are needed to bring UK property rental business of non-UK companies within the charge to corporation tax so that provisions such as sections 534 (tax treatment of profits) and 541 (ring-fencing) apply to all non-UK companies.
1605.Paragraph 32(3) of Schedule 17 to FA 2006 does not specify whether it is profits and/or gains of UK property rental business which are made subject to corporation tax. The Act provides that only profits of UK property rental business, which are not already subject to corporation tax, are caught by this section. This approach ensures that gains of non-UK companies with no permanent establishment in the United Kingdom are not brought within the charge to tax in the United Kingdom. SeeChange 41 in Annex 1.
1606.In the case of a non-UK company carrying on a UK property rental business, subsections (2) and (3)(b) (based on paragraph 32(5) of Schedule 17 to FA 2006) remove the charge to income tax and replace it with a charge to corporation tax for the purposes of this Part. If the rules in this Part apply, that charge to corporation tax is removed. To the extent that the rules in this Part do not apply, any charge to income tax is undisturbed.
Section 521: “UK company” and “non-UK company”
1607.This section defines “UK company” and “non-UK company” for the purposes of the Part. It is based on section 106(3) of, and paragraph 3(1) of Schedule 17 to, FA 2006.
1608.Subsection (1) defines “UK company” for the purposes of the Part as a company which is UK resident and is not resident in any other place for the purpose of taxation. AUK company is not the same as a “UK resident” company (which is defined in section 1119).
Section 522: “Residual business”
1609.This section defines “residual business” for the purposes of the Part. It is based on section 105(3)(c) of, and paragraph 2(c) of Schedule 17 to, FA 2006.
1610.The reason for the definition of residual business is two-fold. First, it is needed to identify the profits and gains which are charged to corporation tax at the main rate under sections 534(3) and 535(6). Second, it is needed to identify items to be included in the financial statements in accordance with section 532(2)(c).
1611.For non-UK companies the definition of residual business is aligned with the definition used for other members of a group. It is based on paragraph 2(c) of Schedule 17 to FA 2006 which provides that residual business is all business other than property rental business.
