The Real Estate Investment Trusts (Prescribed Arrangements) Regulations 2009

EXPLANATORY NOTE

(This note is not part of the Regulations)

Part 4 of the Finance Act 2006 (c. 25) (“Part 4”) sets out the Real Estate Investment Trusts legislation. It is an elective regime which removes taxation at corporate level for qualifying property rental business. That business is “ring-fenced” from non-qualifying business activities carried on by other parts of the company, or group of companies.

These Regulations aim to prevent artificially manipulated commercial arrangements entered into by a company or group of companies, where the arrangements have as their purpose, or main purpose, the meeting of various conditions set out in the legislation so as to enable a previously non-qualifying group to qualify for REIT status. Where such arrangements are entered into they are prescribed by the regulations.

The effect of the regulations is that they treat a person (and any person in which that person has a direct or indirect interest who falls within the scope of those arrangements) who has entered into prescribed arrangements with a REIT company as a member of the same REIT group from the beginning of the accounting period in which the arrangements are made. As such the provisions of Part 4 will apply to that person or those persons.

Regulation 1 deals with citation, commencement and effect. The regulations come into force on making, and by virtue of paragraph 8(2) of Schedule 34 to the Finance Act 2009 (c. 10), have effect in relation to prescribed arrangements made on or after 7^th May 2009 where those arrangements fall within an accounting period which ends on or after the date on which the regulations are made.

Regulation 2 deals with interpretation, including the definition of a “person”, “arrangements”, and “prescribed arrangements” for the purposes of the regulations.

Regulation 3 sets out the conditions that need to be satisfied in order for the regulations to apply.

Regulation 4 excludes arrangements which have been entered into either for genuine commercial purposes, or have been entered into at arm’s length, from the definition of prescribed arrangements.

Regulation 5 sets out the consequences of a person entering into prescribed arrangements, namely that the person in question is to be treated as a member of a REIT group for the purposes of Part 4.

Regulation 6 sets out the effect for corporation tax purposes where a company, as a result of the application of the regulations, ceases to be a company to which Part 4 applies. Where the prescribed arrangements are entered into in the company’s first accounting period given in a notice under section 109 of the Finance Act 2006 (notice), any corporation tax paid by way of entry charge pursuant to section 112 (entry charge) of that Act shall be fully taken into account when assessing its overall liability to corporation tax.

A full and final Impact Assessment has not been produced for this instrument as a negligible impact on the private or voluntary sectors is foreseen.