Taxes Consolidation Act 1997 section 705H

Profit financing cost ratio

Section 705H imposes a corporation tax charge on a REIT or group REIT where its property financing costs are disproportionately high relative to its property rental income.

• Property financing costs include interest, discounts, premiums, swap or hedging costs, and fees associated with debt finance or finance leases used in a property rental business.
• The property financing costs ratio compares the sum of property income plus property financing costs to the property financing costs alone, and must be at least 1.25:1.
• Where the ratio falls below 1.25:1, the REIT or principal company is charged corporation tax under Case IV of Schedule D on the amount by which financing costs would need to be reduced to restore the ratio, subject to a cap of 20% of property income.
• No loss, deficit, expense, or allowance may be set against the amount subject to the Case IV charge.