The Real Estate Investment Trusts (Breach of Conditions) Regulations 2006
| Jurisdiction | UK Non-devolved |
| Citation | SI 2006/2864 |
| Year | 2006 |
2006 No. 2864
corporation tax
The Real Estate Investment Trusts (Breach of Conditions) Regulations 2006
Made 1st November 2006
Laid before the House of Commons 1st November 2006
Coming into force 1st January 2007
The Treasury, in exercise of the powers conferred by sections 114 to 116, 122, 129(2) (a) and (b), 134(1) and 144 of the Finance Act 20061, make the following Regulations:
Citation, commencement and interpretation
1.—(1) These Regulations may be cited as the Real Estate Investment Trusts (Breach of Conditions) Regulations 2006 and shall come into force on 1st January 2007.
(2) In these Regulations—
“the Commissioners” means the Commissioners for Her Majesty’s Revenue and Customs;
“the holder of excessive rights” means a person falling within section 114(1)(a), (b) or (c) being—
(a) a company as defined in section 832(1) of the Income and Corporation Taxes Act 19882; or
(b) an entity which is treated as a body corporate for tax purposes—
(i) in accordance with the law of a territory outside the United Kingdom with which arrangements have been entered into to provide relief from double taxation; or
(ii) in accordance with an international agreement containing such arrangements
where those arrangements have effect by virtue of an Order in Council under section 788 of the Income and Corporation Taxes Act 19883;
“MCT” means—
(a) in relation to a company to which Part 4 applies, the rate of tax applicable to the company under section 119(2) (rate of corporation tax: profits of C (residual)); and
(b) in relation to a group to which Part 4 applies, the rate of tax applicable to the members of the group under section 119(2) as modified by virtue of paragraph 17 of Schedule 17; and
a reference (without more) to a numbered provision of the Finance Act 2006, is a reference to the provision bearing that number.
(3) The following provisions of these Regulations, other than regulations 10 and 12, apply to groups to which Part 4 applies as they apply to companies to which that Part applies, and for that purpose references in the following regulations to the company are to the principal company save that the references in regulations 6, 8 and 9 are to be read as references to the group.
Breach of conditions in section 106
Breach of conditions for company — take-overs
2.—(1) This regulation applies if a company to which Part 4 applies breaches Conditions 3 and 4 in section 106 in consequence of its becoming a member of a group (or another group) to which that Part applies.
(2) Part 4 shall continue to apply despite the breach.
Breach of condition for company — actions of others
3.—(1) This regulation applies if a company to which Part 4 applies breaches Condition 4 in section 106 where the breach is caused by someone other than the company.
(2) Part 4 shall continue to apply to the company, despite the breach, provided that the breach is remedied not later than the end of the accounting period following that in which it began.
(3) But if the breach is not remedied before the end of the accounting period following that in which it began, Part 4 shall be taken to have ceased to apply to the company at the end of the accounting period in which the breach began.
Breach of condition for company — other
4.—(1) This regulation applies if a company to which Part 4 applies breaches Condition 3 or 4 in section 106 in respect of an accounting period where the breach arises in circumstances other than those specified in regulations 2 and 3.
(2) Part 4 shall be taken to have ceased to apply to the company at the end of the previous accounting period.
Breach of conditions in section 107
Breach of requirements as to properties
5.—(1) This regulation applies in relation to breaches of Condition 1 (minimum number of properties) or Condition 2 (individual property not to represent more than 40% of the total value of the property value business) in section 107.
(2) For the purposes of section 129(2)(a) (number of breaches during a specified period which are to be disregarded)—
(a)
(a) the number of occasions on which the company can rely on this regulation in respect of a breach of either Condition 1 or Condition 2 in an accounting period is two; and
(b)
(b) the specified period is the ten year period beginning on the day on which the company first failed to satisfy one of those condition and ending immediately before the tenth anniversary of that day.
(3) Any breach of Condition 2 which is a necessary consequence of a contemporaneous breach of Condition 1 shall be disregarded in computing the number of breaches of—
(a)
(a) Condition 2; and
(b)
(b) the total number of breaches;
during any ten year period.
But the breach of Condition 1 giving rise to the breach of Condition 2 shall not be so disregarded.
This is subject to the following qualifications.
(4) If a breach of Condition 1 or 2 lasts for more than one, but not more than two, accounting periods, it constitutes only one breach for the purposes of paragraph (2).
(5) If in any three consecutive accounting periods a company fails to satisfy at least one of Conditions 1 and 2 the breach is not to be considered as minor and the company may not rely upon this regulation for the purposes of section 129(2)(a).
Breach of distribution condition
6.—(1) This regulation applies to a company which has not satisfied (to the extent required) Condition 4 in section 107 for an accounting period.
(2) Part 4 shall continue to apply to the company despite the failure.
But this is subject to the rest of this regulation.
(3) Where a company has not satisfied Condition 4 in section 107 the amount computed in accordance with paragraph (4) shall be charged to corporation tax as if it were income of C (residual) chargeable to tax under Case VI of Schedule D atMCT.
(4) The amount is—
Here—
P is 90% of the profits of the property rental business arising in the accounting period referred to in section 107(8); and
D is the gross amount of profits of the property rental business distributed in respect of the accounting period on or before the date set out in section 107(8)(b) or on any later date that the Commissioners may specify.
(5) No tax shall be charged if —
(a)
(a) the company declares and pays an additional dividend within 3 months following the date on which the profits of the property rental business as calculated in accordance with section 120 can no longer be altered; and
(b)
(b) the payment of the additional dividend results in the total amount of profits distributed in respect of the accounting period being 90% or more of the profits of the property rental business in that accounting period.
(6) Any additional dividend declared and paid by the company which is taken into account under this regulation must be disregarded for the purposes of determining whether or not the company has met Condition 4 in section 107 in respect of another accounting period.
(7) Profits relating to a different accounting period shall not be taken into account when calculating whether the condition in section 107(8) has been met.
(8) No loss, deficit, expense or allowance may be set off against the amount charged to tax by paragraph (3).
Breach of conditions in section 108
Breach of balance of business conditions
7.—(1) This regulation applies to a company to which Part 4 applies and which has not satisfied the requirements of Condition 1 or 2 in section 108 in respect of an accounting period.
(2) Part 4 shall continue to apply to the company, despite a breach of Condition 1 in section 108, provided that the profits arising from tax-exempt business referred to in section 108(2) are not less than 50% of the company’s total profits for that accounting period.
(3) Part 4 shall continue to apply to the company, despite a breach of Condition 2 in section 108, provided that the value of the assets...
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