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Background

One aim of the UK-REIT rules is to move the point of taxation from the investment vehicleÌý³Ù´Ç individual investors.  To achieve this PIDs are normally paid under deduction of withholding tax (except where paid to certain investors who are to be paid gross - see IFM28125) and taxed as income from property in the investor’s hands.

Double Taxation Agreements (DTAs) often allow shareholders holding 10% or more of the capital of a company beneficial treaty rates of tax on dividends. Where there are no specific provisions for distributions from REITs in those DTA's, this means that certain shareholders holding 10% or more of the capital of a UK REIT may be able to reclaim all or a large proportion of the UK withholding tax on PIDs.  

The ‘holder of excessive rightsâ€� (HoERs) rules (CTA2010/s551- S554A) counter this risk of reduced (or no) tax being paid on a PID by imposing a tax charge on a UK- REIT if it makes a distribution to a holder of excessive rights that is not an “excluded holderâ€� (see IFM22105). These rules encourage REIT's to ensure that distributions are not made to HoERs. Certain reasonable steps can be taken to avoid this charge (see IFM22125Ìý³Ù´Ç IFM22150).