Taxes Consolidation Act 1997 section 705K

Taxation of certain shareholders

Section 705K deals with the taxation consequences where a REIT or group REIT makes a distribution to a shareholder who is a "holder of excessive rights".

• A holder of excessive rights is a non-qualifying investor entitled to at least 10% of a REIT's property income distribution, or controlling at least 10% of the share capital or voting rights in the REIT or the principal company of a group REIT.
• Where a person becomes a holder of excessive rights solely because a company converts to a REIT, the penalty provisions do not apply for three years from the conversion date, allowing the REIT time to dilute the shareholding below 10%.
• If a REIT makes a distribution to a holder of excessive rights without having taken reasonable steps to prevent it, the REIT (or principal company of a group REIT) is treated as receiving an equivalent amount of income.
• That deemed income is chargeable to corporation tax under Case IV of Schedule D in the accounting period of the distribution, and no loss, deficit, expense or allowance may be set off against it.