Shaftesbury PLC is a Real Estate Investment Trust or REIT. It converted to REIT status on 1 April 2007.
REITS are tax-exempt, listed property investment companies which are not liable to pay corporation tax on their rental income or capital gains on qualifying activities, providing certain conditions are met.
This regime was introduced in the UK with effect from 1 January 2007 although similar regimes exist in other countries including the USA and Australia.
Companies which meet the conditions for conversion may elect to convert to REIT status. To qualify, companies must meet a number of conditions including minimum levels of interest cover and the proportion of total profits and assets that relate to their property rental business. Companies are required to distribute to shareholders at least 90% of the profits arising from tax-exempt business as Property Income Distributions (PIDs). HMRC can levy a penalty of 20% of the dividend paid where a REIT pays a dividend to a corporate shareholder which controls (directly/indirectly) 10% or more of the votes or is beneficially entitled (directly/indirectly) to 10% or more of the capital or dividends of the REIT. Shaftesbury have taken steps to prevent payment of dividends to such corporate shareholders - see the company's articles.
Although REITs do not pay corporation tax on profits and gains from UK qualifying rental business, they remain liable to corporation tax on non-property investment business including rent or profits on the sale of trading properties.
For further information on REIT's please see:
Property Income Distributions (PIDs)
The tax exempt profits that are required to be distributed are not necessarily a company’s accounting profits. HMRC requires various adjustments to be made including tax deductible allowances on qualifying capital spend.
Dividends are paid as Property Income Distributions or PIDs. PIDs are taxable as property letting income (for shareholders who are not tax exempt) but will be treated separately from any other property letting business which they may carry on.
PID dividend payments will be paid after deduction of withholding tax at basic rate (20% as at 2017/2018) which the REIT pays to Her Majesty’s Revenue and Customs (“ HMRC”) on behalf of the shareholder.
Tax exemption & refund
Certain categories of shareholders may be able to claim exemption from deduction of withholding tax and receive their dividends gross. Categories include:
- UK companies
- Local authorities
- UK Pension Schemes
- Managers of PEPs, ISAs and Child Trust Funds
To claim an exemption, shareholders should complete one of the forms below and return it to the Company’s registrars who are:
Other shareholders resident outside the UK may also be able to claim a refund (either as an individual or as a company) from HMRC subject to the terms of a double tax treaty, if any, between the UK and the country in which they are resident.