Finance Bill Tracking Service 2010 | Budget 2010


Who is likely to be affected?

1. UK Real Estate Investment Trusts (REITs) and shareholders in UK REITs.

General description of the measure

2. This measure will allow UK REITs to issue stock dividends in lieu of cash dividends in meeting the requirement to distribute 90 per cent of the profits from the property rental business of the REIT.

3. The Government intends to legislate this measure in a Finance Bill to be introduced as soon as possible in the next Parliament.

Operative date

4. The legislation will have effect for property income distributions made on or after the date that it receives Royal Assent.

Current law and proposed revisions

5. The UK REIT legislation was introduced in Part 4 of the Finance Act 2006. This legislation has been rewritten, as part of the Tax Law Rewrite Programme, to Part 12 of the Corporation Tax Act 2010 with effect from 1 April 2010.

6. A UK REIT is a qualifying group or company with a property rental business that elects to join the UK REITs regime. The principal benefit of joining the regime is that the profits and gains arising from the property rental business are exempt from corporation tax.

7. The UK REITs legislation requires that a UK REIT distributes, for each accounting period, 90 per cent of the profits from its property rental business by way of a dividend. This is known as the distribution requirement. The distribution itself is known as a property income distribution.

8. In the hands of the shareholders a property income distribution is taxed as though it was income from property. This is to give investors a return similar to investing in property directly and assists in making the regime cost neutral to the Exchequer.

9. Currently stock dividends do not count as property income distributions and so are not able to be used by UK REITs to meet the distribution requirement.

10. A change to primary legislation will be made to allow UK REITs to issue stock dividends in lieu of cash dividends for the purpose of the distribution requirement. The recipients of stock dividends paid to meet the distribution requirement will be taxed in the same way as the recipients of property income distributions paid in cash.

Further advice

11. If you have any questions about this change, please contact Tony Linehan on 020 7147 0527 (email: Information about Budget measures is available on the HM Revenue & Customs website at