UK REIT regime and dividends
This summary of the REIT rules is a general overview only of the United Kingdom REIT rules and the implications for Land Securities Group PLC (Landsec) and its shareholders.
It should be regarded as neither comprehensive nor sufficient for making decisions, nor should it be used in place of professional tax advice. Land Securities Group PLC accepts no responsibility for any loss arising from any action taken or not taken by any person using this material.
Landsec within the UK REIT regime
Landsec has been a Real Estate Investment Trust (REIT) since the UK introduced the status in 2007. REITs exist in many countries and are widely understood as a cost-efficient way to invest in property; as it moves responsibility for the payment of tax from the REIT to its shareholders.
Previously, there was an effective double level of taxation for some investors in property companies, firstly in the company and a second when received by the shareholders. The UK REIT regime removed this double level of taxation and allows our shareholders to be taxed on Property Income Distributions (PID) from investment property according to their own tax status. This gives our shareholders a similar tax outcome to owning property directly.
Under REIT legislation, Landsec is exempt from UK corporation tax on UK property investment income, gains on UK property and gains on UK property rich entities. However, it must pay out 90% of underlying tax-exempt property income (not gains) to shareholders as a PID within 12 months. These PIDs are subject to withholding tax at 20%, unless investors have informed Landsec about their qualification for gross payments. Tax is borne by our shareholders on these dividends, according to their tax status.
Landsec is still subject to corporation tax on any residual (non tax-exempt) income. This includes profits on trading activities (such as properties developed with a view to a sale), capital gains on UK property assets or companies sold within three years of completion of a development, and non-UK property assets.
When you receive a dividend from Landsec it will be clear which elements of it are PID and which are non-PID. This distinction and the shareholder’s tax status will determine how the dividend is taxed.
Any non-PID element of dividends will be treated in exactly the same way as dividends from other UK, non-REIT companies.
Property Income Distribution (PID) dividends
Profits distributed out of tax-exempt profits of Landsec are PID dividends. PID dividends are paid after deduction of withholding tax (currently at 20%), which Landsec pays directly to HMRC on behalf of the shareholder.
Certain classes of shareholders can qualify to receive PIDs gross (i.e. without deduction of withholding tax), including:
- UK resident companies,
- UK public bodies,
- UK charities,
- UK pension funds,
- the managers of ISAs, PEPs, Child Trust Funds, and
- partnerships where all members qualify as one of the aforementioned bodies.
To claim exemption from withholding tax and receive dividends gross one of the following forms needs to have been completed and submitted to our Registrar, Equiniti:
Other shareholders, including all individuals and all non-UK residents, do not qualify and will be paid net of tax at 20%.
Non-resident shareholders in countries which have double tax treaties with the UK providing for withholding tax on dividends at a lower rate than 20% may be able to make claims for repayment of the difference between the treaty rate and 20% from HMRC. Shareholders should seek advice based on their own circumstances.
Claim forms for non-resident individuals and companies may be downloaded from the HMRC website.
Substantial Shareholdings in Landsec (≥ 10%)
The articles of Land Securities Group PLC have additional sections relating to the REIT status which may require action by shareholders.
We would like to highlight the need for any shareholders to serve notice in writing at the registered office on:
- him becoming a substantial shareholder, together with details of voting rights and share capital he controls or is beneficially entitled to;
- him becoming a relevant registered shareholder
- change in any such notice previously given regarding being a substantial shareholder or relevant registered shareholder.
A substantial shareholder is defined as:
- beneficially entitled (directly or indirectly) to at least 10% of the distributions of Landsec,
- beneficially entitled (directly or indirectly) to at least 10% of the Landsec’s share capital, or
- controls (directly or indirectly) at least 10% of the voting rights of Landsec.
A relevant registered shareholder is a shareholder in Landsec who holds all or some of the shares that comprise a substantial shareholding (whether or not a substantial shareholder themselves)
Completing individual UK tax resident tax returns
PIDs received from a UK REIT, including Landsec, are treated as being taxable property letting income in the hands of shareholders. For the tax return they are included as ‘Other Income’.
For online tax returns:
- go to "Other UK income"
- tick the bottom box "Any other income"
- in "Other taxable income – before expenses and tax taken off" enter the total amount of the PID received (including 20% tax withheld),
- in "Tax taken off" box enter the tax withheld and
- in the box for “Description of other taxable income” state “Land Securities Group PLC PID".
For paper returns (based on 2019 tax return SA100):
- in box 17 "Other taxable income – before expenses and tax taken off" (page 3) enter the total amount of the PID received (including 20% tax withheld)
- in box 19 “Tax taken off” enter the tax withheld
- in box 21 “Description of other taxable income” state “Land Securities Group PLC PID".
Please note that the tax-free dividend allowance does not apply to the PID element of the dividends.
Non PID dividends
Any non-PID dividends will be treated the same as ordinary dividends paid by any other UK non-REIT company.
From 6 April 2016 the notional 10% tax credit has been abolished and was replaced with a tax-free dividend allowance. Learn more.