Legislation – Finance Act 2022

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SCHEDULES

SCHEDULE 3Real Estate Investment Trusts

Section 15

1

The amendments made by this Schedule are to Part 12 of CTA 2010 (real estate investment trusts) unless otherwise stated.

Conditions for companies in relation to UK REITs

2 (1)

In section 527 (being a UK REIT in relation to an accounting period)—

(a)

in subsection (2)(aa), at the end insert “(but see subsection (3A))”;

(b)

in subsection (3)(aa), at the end insert “(but see subsection (3A))”;

(c)

after subsection (3) insert—

“(3A)

Subsections (2)(aa) and (3)(aa) do not apply in relation to a period, or to any part of a period, in respect of which condition C in section 528 is met as a result of subsection (3)(b) of that section.”

(2)

In section 528 (conditions for company)—

(a)

in subsection (3)—

(i)

the words from “the shares” to the end become paragraph (a), and

(ii)

after that paragraph insert “, or

(b)

at least 70% of the shares forming the company’s ordinary share capital are owned by one or more institutional investors (see sections 528ZA and 528ZB).”;

(b)

after subsection (3) insert—

“(3A)

Subsection (3B) applies where condition C ceases to be met in relation to a company UK REIT or the principal company of a group UK REIT as a result of subsection (3)(b) ceasing to apply in relation to that company.

(3B)

The company is to be treated as if condition C continued to be met in relation to that company as a result of that subsection for the period of 12 months beginning with the day on which this subsection begins to apply.”;

(c)

in subsection (4A)(j) omit “, under the law of that territory,”.

(3)

After section 528 insert—

“528ZAListing requirement: ownership by institutional investors

(1)

This section applies for the purposes of section 528(3)(b) (listing requirement where at least 70% of shares are owned by institutional investors).

(2)

A person “owns” ordinary share capital if the person owns it—

(a)

directly,

(b)

indirectly, or

(c)

partly directly and partly indirectly.

(3)

Sections 1155 to 1157 (meaning of “indirect ownership” and calculation of amounts owned indirectly) apply for the purposes of subsection (2).

(4)

For the purposes of sections 1155 to 1157 as applied by subsection (3), treat references to a body corporate as including—

(a)

an exempt unauthorised unit trust,

(b)

anything which is included in references to a body corporate for the purposes of paragraph 46 of Schedule 5AAA to the TCGA 1992 (UK property rich collective investment vehicles etc) (see sub-paragraph (12) of that paragraph), and

(c)

an authorised contractual scheme which is a co-ownership scheme,

and, in relation to an entity within paragraph (a), (b) or (c), references to ordinary share capital are to be treated as references to units or other corresponding interests in the entity concerned.

(5)

A person is also to be regarded as owning ordinary share capital in a company in circumstances where the person would be regarded as holding shares in a company under paragraphs 12 and 13 of Schedule 7AC to TCGA 1992 (exemptions for disposals by companies with substantial shareholding).

(6)

Where the assets of a partnership include ordinary share capital of a company, each partner is to be regarded as owning a proportion of that share capital equal to the partner’s proportionate interest in that ordinary share capital.

(7)

But subsection (6) does not apply in relation to a limited partnership which is a collective investment scheme as mentioned in section 528(4A)(c) at any time when the partnership meets the genuine diversity of ownership condition (see section 528ZB(2)).

(8)

In subsection (4)—

“authorised contractual scheme” and “co-ownership scheme” have the meanings given by sections 237(3) and 235A, respectively, of FISMA 2000;

“exempt unauthorised unit trust” has the same meaning as in the Unauthorised Unit Trusts (Tax) Regulations 2013 (S.I. 2013/2819).

528ZBListing requirement: collective investment schemes

(1)

For the purposes of section 528(3)(b) (listing requirement where at least 70% of shares are owned by institutional investors), where shares are owned by a person acting on behalf of a limited partnership which is a collective investment scheme as mentioned in section 528(4A)(c), the person is to be treated as an institutional investor only if the collective investment scheme meets the genuine diversity of ownership condition.

(2)

A collective investment scheme meets the genuine diversity of ownership condition at any time if, at that time, it meets—

(a)

the conditions in regulation 75(2), (3) and (4)(a) of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001), or

(b)

the condition in regulation 75(5) of those Regulations (assuming for this purpose that regulation 75(4)(b) is omitted),

and those Regulations apply for the purposes of this subsection as if any collective investment scheme which is not an offshore fund were regarded as an offshore fund.

(3)

For the purposes of determining whether a collective investment scheme meets the genuine diversity of ownership condition as mentioned in subsection (2), the fact that (for any reason) the capacity of the vehicle to receive investments is limited does not prevent regulation 75(3) of the Offshore Funds (Tax) Regulations 2009 (including as it applies for the purposes of regulation 75(5) of those Regulations) from being met.

(4)

Subsection (3) does not apply if—

(a)

the limited capacity of the scheme to receive investments is fixed by the documents of the vehicle (or otherwise), and

(b)

a pre-determined number of specific persons, or specific groups of connected persons, make investments in the vehicle that collectively exhaust all, or substantially all, of that capacity.

(5)

For the purposes of determining whether a collective investment scheme constituted before 1 April 2022 meets the genuine diversity of ownership condition as mentioned in subsection (2), it is to be assumed that regulation 75(2) of the Offshore Funds (Tax) Regulations 2009 (including as it applies for the purposes of regulation 75(5) of those Regulations) has effect as if it referred to a statement prepared by the manager of the scheme, available to HMRC, which—

(a)

specifies the intended categories of investor when the scheme was marketed,

(b)

confirms that the interests in the scheme were made widely available, and

(c)

confirms that interests in the scheme were marketed and made available in accordance with the requirements of regulation 75(4)(a) of those Regulations (and that provision is to be read accordingly).”

Requirements for financial statements

3 (1)

In section 531 (conditions as to balance of business)—

(a)

in subsection (2)—

(i)

in paragraph (a) omit “(as shown in the financial statement under section 532(2)(a))”;

(ii)

in paragraph (b) omit “(as shown in the financial statement under section 532(2)(c))”;

(b)

after subsection (2) insert—

“(2A)

Where the matters mentioned in section 533(1)(a) to (ca) must be specified in a financial statement under section 532(2)(a) or (c) in relation to each member of a group (see section 533(1C))—

(a)

the reference in subsection (2)(a) to the profits of property rental business of members of the group are to those profits as shown in the financial statement under section 532(2)(a), and

(b)

the reference in subsection (2)(b) to the profits of residual business of members of the group are to those profits as shown in the financial statement under section 532(2)(c).”;

(c)

in subsection (6), in the words before paragraph (a), after “group” insert “, where the matters mentioned in section 533(1)(d) must be specified in a financial statement under section 532(2)(a) and (c) in relation to each member of the group (see section 533(1G))”.

(2)

In section 533 (financial statements: supplementary)—

(a)

in subsection (1)—

(i)

in the words before paragraph (a), omit “each member of”;

(ii)

omit the “and” at the end of paragraph (c);

(iii)

after paragraph (c) insert—

“(ca)

the items specified in section 531(4)(b) to (d), and”;

(iv)

in paragraph (d), in the words before sub-paragraph (i), after “assets” insert “, including assets within subsection (1ZA),”;

(b)

after subsection (1) insert—

“(1ZA)

Assets are within this subsection if they are held solely—

(a)

in connection with the items mentioned in section 531(4)(b) and (c), or

(b)

as a result of compliance with planning obligations entered into as mentioned in section 531(4)(d).”;

(c)

after subsection (1A) insert—

“(1B)

Subsection (1C) applies where in the accounting period for which statements are prepared under section 532(2) profits of the group’s property rental business are less than 80% of the sum of—

(a)

the profits of property rental business of the group, and

(b)

the profits of residual business of the group.

(1C)

In addition to being specified in relation to the group, the matters mentioned in subsection (1)(a) to (ca) must be specified in a financial statement under section 532(2)(a) or (c) in relation to each member of the group.

(1D)

For the purposes of establishing whether subsection (1C) applies—

(a)

the references to profits in subsection (1B) are to profits determined in the same way as profits are determined in accordance with section 531(4);

(b)

any expenses relating to both property rental business and residual business are to be apportioned on a just and reasonable basis.

(1E)

Where the effect of subsections (1B) and (1C) is that there is no requirement to specify in a financial statement for an accounting period under section 532(2)(a) or (c) the matters mentioned in subsection (1)(a) to (ca) in relation to each member of a group, it is to be assumed that the group meets condition A in section 531(1) in relation to that accounting period.

(1F)

Subsection (1G) applies where, at the beginning of the accounting period for which statements are prepared under section 532(2), the sum of—

(a)

the value of the assets relating to property rental business, and

(b)

the value of the assets relating to residual business so far as consisting of cash or relevant UK REIT shares,

is less than 80% of the total value of assets held by the group.

(1G)

In addition to being specified in relation to the group, the matters mentioned in subsection (1)(d) must be specified in a financial statement under section 532(2)(a) or (c) in relation to each member of the group.

(1H)

For the purposes of establishing whether subsection (1G) applies, references to assets in subsection (1F) are to the assets excluding—

(a)

assets held solely in connection with the items mentioned in section 531(4)(b) and (c), and

(b)

assets held solely as a result of compliance with planning obligations entered into as mentioned in section 531(4)(d).

(1I)

Where the effect of subsections (1F) and (1G) is that there is no requirement to specify in a financial statement for an accounting period under section 532(2)(a) or (c) the matters mentioned in subsection (1)(d) in relation to each member of a group, it is to be assumed that the group meets condition B in section 531(5) in relation to that accounting period.”

Balance of business test

4 (1)

In section 531 (conditions as to balance of business)—

(a)

in subsection (4)—

(i)

in the words before paragraph (a) omit “In the case of a company,”;

(ii)

in the words before paragraph (a), for “(1) and (3)” substitute “(1) to (3)”;

(iii)

omit the “and” at the end of paragraph (b);

(iv)

at the end of paragraph (c) insert “, and

(d)

profits of residual business of the company or, as the case may be, group resulting from compliance with planning obligations entered into in accordance with section 106 of the Town and Country Planning Act 1990 in the course of the property rental business of the company or group.”;

(b)

after subsection (7) insert—

“(7A)

References in subsections (5) to (7) to assets are to assets excluding—

(a)

assets held solely in connection with the items mentioned in subsection (4)(b) and (c), and

(b)

assets of residual business of members of the group or of the company held solely as a result of compliance with planning obligations entered into as mentioned in subsection (4)(d).”

(2)

In consequence of the amendments made by sub-paragraph (1), in the Real Estate Investment Trusts (Financial Statements of Group Real Estate Investment Trusts) Regulations 2006 (S.I. 2006/2865), omit regulation 7.

Holders of excessive rights

5

In section 553 (meaning of “holder of excessive rights”), in subsection (1), after paragraph (b) insert “,

other than a person to whom a payment of a distribution must be made without deduction of income tax in accordance with regulation 7 of the Real Estate Investment Trusts (Assessment and Recovery of Tax) Regulations 2006 (S.I. 2006/2867) (gross payment of distributions).”

Application and commencement

6 (1)

The amendments made by paragraphs 2 to 4 have effect in relation to accounting periods (within the meaning of Part 12 of CTA 2010) that begin on or after 1 April 2022.

(2)

Paragraph 5 comes into force on 1 April 2022.