UK REIT taxation
Land Securities converted to Real Estate Investment Trust status on 1 January 2007 and became the UK's largest REIT by market capitalisation, a position it still holds today.
Before REITs were launched in the UK, quoted property companies like Land Securities suffered from a type of double taxation; first, companies had to pay corporation tax and secondly, investors had to pay tax on their share dividends.
Since its REIT conversion Land Securities enjoys exemption from corporation tax on qualifying rental income and on the gains on disposal of UK investment properties. Dividend payments may now be comprised of two components: a Property Income Distribution (PID) from the REIT qualifying activities and a dividend distribution from the non-qualifying activities (non-PID). The aggregate of these two components are referred to as our total dividend. For most shareholders, PIDs will be paid after deducting withholding tax at the current basic rate of 20%.
However, certain categories of shareholder are entitled to receive PIDs without withholding tax:
- UK companies
- Local Authorities
- UK Pension Schemes
- Managers of PEPs, ISAs and Child Trust Funds
Forms to enable the above classes of shareholder to be paid gross of withholding tax are contained in the links below.
Most shareholders, including all individuals and all non-UK residents, do not qualify for gross payment and should not complete the forms. However, some oversears shareholders may be able to reclaim some or all of the withholding tax under relevant double taxation treaty and should discuss this with their own tax advisers and / or contact HMRC.
PIDs are taxable as property letting income in the hands of shareholders and are not 'dividends' for the purposes of the new UK dividend taxation regime. HMRC income tax returns contain a separate box ("other income") and explanatory notes to enable individual taxpayers to report their PID income. Shareholders whose rate of UK income tax is less than 20% or who do not pay tax at all, perhaps because of personal allowances or other reliefs, may be able to reclaim the difference from HMRC.