Commentary

D7.1153 Specific rules affecting groups in the REIT regime

Corporate tax
Corporate tax | Commentary

D7.1153 Specific rules affecting groups in the REIT regime

Corporate tax | Commentary

D7.1153 Specific rules affecting groups in the REIT regime

The treatment of groups of companies to which the REIT regime applies (hereafter referred to as group UK REITs) is broadly the same as single company UK REITs, but there are some particular differences as discussed below in relation to:

  1.  

    •     the qualifying conditions and joining/leaving a group REIT

  2.  

    •     inter-company charges, in relation to loans, goods and services etc

  3.  

    •     intra-group transactions

  4.  

    •     the definition of a group REIT and the interaction with other general group taxation rules

Qualifying conditions and joining/leaving a group REIT

Profit: financing-cost ratio

The formula by which the profit: financing-cost ratio (see D7.1104) is determined for group UK REITs differs from that for single company UK REITs.

For group UK REITs, the formula compares the sum of property rental profits, before capital allowances and financing costs, of each company in the group (as calculated for tax purposes under CTA 2010, s 599 (see D7.1115A) and set out in the financial statements at CTA 2010, s 532(2)(b) (see D7.1155)), to the external financing costs incurred by the group in respect of the property rental business, as calculated for accounting purposes under International Accounting Standards and ignoring any financing costs paid between group companies1.

The intention of this is to reduce the impact of differing capital structures by requiring the group to consider the ultimate use of the borrowings. For example, the external financing costs of a group where the parent company borrows debt and lends this down to

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