The tax treatment for distributions differs depending on whether the distribution is from one UK REIT to another UK REIT or not. Distributions covered by the REIT regime are distributions from property rental income of the UK REIT. If other profits are distributed, these will have the tax treatment of a normal dividend. For HMRC guidance see its Investments Funds Manual1
Distributions from one UK REIT to another UK REIT
The income from UK REITs investing in other UK REITs is treated as income of the investing REIT's tax exempt property rental business. The legislation refers to these as 'UK REIT investment profits'.
The property income distribution that a UK REIT receives from another UK REIT in which it invests is tax exempt2.
Distributions of profits and gains of the property rental business will fall within this rule if they are made by the principal company of a group REIT to a member of another group REIT or a company REIT. Similarly, such distributions by company REITS will fall within this rule if they are made to a shareholder which is a member of a group UK REIT or another company REIT3.
The provisions in ITTOIA 2005, ss 409–413A which would otherwise tax individuals receiving a stock dividend are specifically disapplied4.
The joint venture rules5 (D7.1166) apply to distributions that are UK REIT investment profits distributions6