Chapter 6:Distributions
Section 548: Distributions: liability to tax
1725.This section provides that distributions of profits and gains of property rental business in the United Kingdom are treated as income of a UK property business rather than as dividend income in the hands of the shareholder. It is based on sections 121(1), (2) and (8) and 134(1) of, and paragraphs 18(1) and (3) and 32(8) of Schedule 17 to, FA 2006.
1726.Subsections (1) and (3) provide that the section applies to a distribution of “profits or gains (or both)”. This is reflects the inclusion of gains by section 121(8)(b) of FA 2006. The inclusion of gains here contrasts with the rule in section 530 (the distribution of profits test), where the test is concerned only with the (income) profits of property rental business.
1727.Subsection (5) provides that if the shareholder is within the charge to corporation tax, the distribution is treated as profits of a UK property business. So the income falls within Part 4 of CTA 2009. Section 931W(2) of CTA 2009 ensures the distribution is not charged to tax under Part 9A of CTA 2009.
1728.Subsection (6) (which is based on section 121(1)(b) of FA 2006) provides that if the shareholder is within the charge to income tax, the distribution is treated as profits of a UK property business. So the income falls within Part 3 of ITTOIA. Section 366(2) of ITTOIA ensures that the distribution is not treated as savings and investment income (including dividends).
1729.Section 121(2)(a) of FA 2006 is not rewritten because it deals with a case (non-UK resident company within the charge to corporation tax) that is already covered by section 121(1)(a) (shareholder within the charge to corporation tax).
1730.Section 121(2)(b) of FA 2006 is not rewritten because it deals with a case (non-UK resident not within the charge to corporation tax) that is already covered by section 121(1)(b) (shareholder within the charge to income tax).
1731.Subsection (7) provides that in the case of a non-UK resident shareholder, a distribution is not subject to a duty to deduct at source in accordance with regulations made under section 971 of ITA. Schedule 1 to this Act amends section 972(6) of ITA so that it refers to this subsection.
Section 549: Distributions: supplementary
1732.This section makes further provision about section 548. It is based on sections 121(3) to (7) and 134(1) of, and paragraphs 18(1) and (2) and 32(8) of Schedule 17 to, FA 2006.
1733.Subsection (1) provides that section 548 does not apply to certain types of shareholders.
1734.Subsection (2) (together with subsection (3)) provides that neither section 397 of ITTIOA nor section 1109 of this Act (tax credits in respect of (exempt) qualifying distributions) do not apply to distributions made by the principal company of a group UK REIT or by a company UK REIT of profits or gains (or both) of property rental business.
1735.Section 121(8)(b) of FA 2006 applies only to section 121(1) of FA 2006. So it is arguable that it does not apply to the rule in section 121(5). But subsection (4) of this section applies to the same distributions (including distributions of gains) as are dealt with by section 548.
1736.Subsection (4) provides that relevant distributions (as defined in subsection (3)) are treated as profits of a single business separate from the businesses mentioned in subsection (5).
Section 550: Attribution of distributions
1737.This section sets out how distributions are attributed between the property rental business of a UK REIT and any other business. It is based on sections 123 and 134(1) of, and paragraph 20 of Schedule 17 to, FA 2006.
Section 551: Tax consequences of distribution to holder of excessive rights
1738.This section sets out the tax consequences of a distribution made to a “holder of excessive rights” (defined in section 553) if the distributing company has not taken steps to prevent it. It is based on section 114 of, and paragraph 13 of Schedule 17 to, FA 2006.
1739.This section enacts regulation 10 of SI 2006/2864. See Change 43 in Annex 1.
1740.Subsections (1)to (3) provide that when a distribution is made to a holder of excessive rights and the distributing company has not taken reasonable steps to prevent its being made, the distributing company is treated as receiving an amount of income calculated in accordance with section 552.
1741.Subsections (4)to (6) provide that the amount is charged to corporation tax as if it were profits of residual business of the distributing company. This means that the rate of tax is the main rate of corporation tax as mentioned in section 534(3).
Section 552: “The section 552 amount”
1742.This section sets out how the “section 552 amount” is calculated for the purposes of section 551. It is based on section 114(2) of, and paragraphs 2 and 13 of Schedule 17 to, FA 2006.
1743.This section enacts regulation 10 of SI 2006/2864. See Change 43 in Annex 1.
1744.Subsections (2)and (3) define “DO” (distribution in respect of ordinary shares) and “DP” (distribution in respect of preference shares) for a group UK REIT by reference to the group’s “UK profits” (as defined in section 530(2)). For a company UK REIT,“DO” and “DP” are defined by reference to the “profits of property rental business of the company”.
Section 553: Meaning of “holder of excessive rights”
1745.This section defines “holder of excessive rights”. It is based on section 114(1) and 134(1) of, and paragraph 13 of Schedule 17 to, FA 2006.
1746.This section enacts regulation 1(2) of SI 2006/2864. See Change 43 in Annex 1.
Section 554: Regulations: distributions to holders of excessive rights
1747.This section allows the Treasury to make regulations dealing with distributions made to holders of excessive rights. It is based on section 114 of, and paragraph 13 of Schedule 17 to, FA 2006.
1748.The section reproduces neither the general regulation-making power in section 114(1) nor the specific power in section 114(2)(a) of FA 2006. See Change 43 in Annex 1.
