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HM Revenue and Customs (HMRC) have now published guidance on Real Estate Investment Trusts (REITs), which became available on 1 January 2007.

Among the main issues clarified are the following:

• the prohibition on distributions to 10 per cent shareholders will apply only where the shareholder in question is a company. However, the prohibition on distributions where the REIT is a ‘close’ company, owned by a small number of non-corporate shareholders, remains; and

• groups of companies can opt to be treated as a group REIT or the principal company of a group can opt for single-company REIT status.

Most importantly, however, HMRC have indicated that they are willing to enter into discussions in cases in which the classification of rental income to be received (schedule D or schedule A) is a grey area. This will be crucial in a REIT.

HMRC’s guidance manual on the tax treatment of REITs can be found at http://www.hmrc.gov.uk/manuals/greitmanual/index.htm.

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