Pre-Annual General Meeting Information • Mar 31, 2015
Pre-Annual General Meeting Information
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THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the action you should take you should consult your stockbroker, bank manager, solicitor, accountant, or other professional independent adviser authorised under the Financial Services and Markets Act 2000 if you are resident in the United Kingdom or, if you reside elsewhere, by another appropriately authorised independent financial adviser.
The Company is authorised as an Authorised Closed-ended investment scheme by the Guernsey Financial Services Commission (the "Commission") under Section 8 of the Protection of Investors (Bailiwick of Guernsey) Law, 1987 as amended (the "POI Law") and the Rules. Notification of the Proposals has been given to the Commission pursuant to the Rules. The Commission has not reviewed this document and takes no responsibility for the correctness of any statements made or opinions expressed with regard to the Company.
If you have sold or otherwise transferred all your shares in Schroder Real Estate Investment Trust Limited, please forward this document, together with the accompanying Form of Proxy, as soon as practicable to the purchaser or transferee, or to the stockbroker, bank or other agent through whom the sale or transfer was effected, for transmission to the purchaser or transferee.
(an Authorised Closed-ended investment company incorporated with limited liability in Guernsey with registered number 41959)
and
Your attention is drawn to the letter from the Chairman of Schroder Real Estate Investment Trust Limited which is set out in Part I of this document. The letter contains the recommendation that you vote in favour of the resolution to be proposed at the Extraordinary General Meeting referred to below.
Notice of an Extraordinary General Meeting of the Company to be held at Trafalgar Court, Les Banques, St. Peter Port, Guernsey GY1 3QL at 10.00 a.m. on 28 April 2015 is set out at the end of this document. Shareholders will find enclosed with this document a reply paid Form of Proxy for use at the Extraordinary General Meeting. Whether or not you intend to attend the Extraordinary General Meeting in person, you are requested to complete the Form of Proxy in accordance with the instructions printed on it and return it as soon as possible and in any event so as to be received by the Company's Registrars, Computershare Investor Services (Guernsey) Limited, The Pavilions, Bridgwater Road, Bristol BS99 6ZY no later than 10.00 a.m. on 24 April 2015, being 48 hours before the time appointed for the holding of the meeting.
| EXPECTED TIMETABLE OF PRINCIPAL EVENTS | ||
|---|---|---|
| DEFINITIONS | 3 | |
| PART I | LETTER FROM THE CHAIRMAN | 5 |
| PART II | THE REIT REGIME | 11 |
| PART III | UNITED KINGDOM TAXATION OF SHAREHOLDERS AFTER ENTRY INTO THE REIT REGIME |
18 |
| PART IV | THE PROPOSED AMENDMENTS TO THE ARTICLES | 23 |
| PART V | NOTICE OF EXTRAORDINARY GENERAL MEETING | 25 |
| Latest time and date for receipt of completed Form of Proxy | 10.00 a.m. on 24 April 2015 |
|---|---|
| Extraordinary General Meeting | 10.00 a.m. on 28 April 2015 |
| Anticipated date for REIT notification to HMRC | during May 2015 |
| Anticipated date of entry to REIT Regime | during May 2015 |
| Notes |
(1) All references to time in this document are to UK time.
(2) If any of the above times and/or dates should change, the revised times and/or dates will be notified to Shareholders by an announcement on a Regulatory Information Service.
The following definitions apply throughout this document unless the context requires otherwise.
| "Articles" | the articles of incorporation of the Company in force at the date of this document |
|---|---|
| "Board" or "Directors" | the board of directors of the Company |
| "Company" | Schroder Real Estate Investment Trust Limited |
| "Commission" | the Guernsey Financial Services Commission |
| "CTA 2009" | the UK Corporation Tax Act 2009 |
| "CTA 2010" | the UK Corporation Tax Act 2010 |
| "Distribution" | any dividend or other distribution by the Company ("distribution" being construed in accordance with Part 23 of CTA 2010) |
| "Excessive Shareholder" | a company or body corporate that is beneficially entitled, directly or indirectly, to 10 per cent. or more of the distributions paid by the Company and/or share capital of the Company, or which controls, directly or indirectly, 10 per cent. or more of the voting rights of the Company (referred to in section 553 of CTA 2010 as a "holder of excessive rights") |
| "Excessive Shareholding" | the shares in the Company by reference to which a person is an Excessive Shareholder |
| "Extraordinary General Meeting" | the extraordinary general meeting of the Company to be held at 10.00 a.m. on 28 April 2015 (or any adjournment thereof) notice of which is set out in Part V of this document |
| "Form of Proxy" | the form of proxy issued by the Company for use by Shareholders in connection with the Extraordinary General Meeting |
| "Group" | the Company, its wholly owned subsidiaries and its 75 per cent. subsidiaries from time to time (as defined in section 606 of CTA 2010) |
| "HMRC" | HM Revenue & Customs |
| "Institutional Investor" | a person who qualifies as an institutional investor under Section 528(4A) of CTA 2010 |
| "IFRS" | International Financial Reporting Standards as adopted by the European Union and therefore comply with Article 4 of the EU IAS regulation |
| "New Articles" | the articles of incorporation proposed to be adopted by the Company at the Extraordinary General Meeting |
| "Non-PID Dividend" | any dividend paid by the Company which is not a PID |
| "Ordinary Shares" | ordinary shares of no par value in the capital of the Company having the rights ascribed and being subject to the restrictions set out in the Articles (or, following adoption of the New Articles, in the New Articles) |
| "Property Income Distribution" or "PID" |
a distribution referred to in section 548(1) or 548(3) of CTA 2010, being a dividend or distribution paid by the Company in respect of profits and gains of the Qualifying Property Rental Business of the Group (other than gains arising to non-UK resident Group companies) arising at a time when the Group is a REIT insofar as they derive from the Group's Qualifying Property Rental Business |
|---|---|
| "Proposals" | the proposals for the Company to adopt the New Articles, become resident in the UK for tax purposes, and for the Group to become a REIT |
| "Qualifying Property Rental Business" |
a business within the meaning of section 205 of CTA 2009 or an overseas property business within the meaning of section 206 CTA 2009, but, in each case, excluding certain specified types of business (as per section 519(3) of CTA 2010) |
| "Registrars" | Computershare Investor Services (Guernsey) Limited |
| "REIT" | a company or group to which Part 12 of CTA 2010 applies |
| "REIT Group" | a group UK REIT within the meaning of Part 12 of CTA 2010 |
| "REIT Regime" | Part 12 of CTA 2010 |
| "Residual Business" | the business of the Group which is not Qualifying Property Rental Business |
| "Resolution" | the special resolution to be proposed at the Extraordinary General Meeting that the Company adopt the New Articles |
| "Rules" | the Authorised Closed-ended Collective Investment Schemes Rules 2008 |
| "Shareholders" | holders of Ordinary Shares |
(an Authorised Closed-ended investment company incorporated with limited liability in Guernsey with number 41959)
Lorraine Baldry (Non-executive Chairman) Trafalgar Court Harry Dick-Cleland (Non-executive Director) Les Banques John Frederiksen (Non-executive Director) St. Peter Port Keith Goulborn (Non-executive Director) Guernsey Alison Ozanne (Non-executive Director) GY1 3QL David Warr (Non-executive Director)
Directors Registered Office:
31 March 2015
Dear Shareholder
The Company was launched in July 2004 as an Authorised Closed-ended investment scheme. The Company's investment objective is to provide Shareholders with an attractive level of income together with the potential for income and capital growth through investing predominantly in UK commercial property.
Both the Company and its property owning subsidiary companies are currently non-UK resident for UK tax purposes and are therefore not subject to UK tax on capital gains. The property owning subsidiary companies are, however, subject to UK income tax at the current rate of 20 per cent. on their taxable UK property income.
In calculating the income tax liability of the property owning companies, certain allowances and expenses can be deducted, including interest payments on intra-group loans. For the Company's principal property owning company, SREIT Property Limited ("SREIT PL"), the level of interest which is permitted to be treated as deductible is determined in accordance with an Advanced Thin Capitalisation Agreement (an "ATCA") entered into with HMRC. SREIT PL entered into this agreement following the conclusion of an HMRC enquiry to secure certainty on intra-group interest deductibility for a five year period with the ATCA terms also adopted for all other intergroup loans within the group. That agreement with HMRC expired on 31 March 2015. Based on advice received from the Company's tax advisors and in light of changes in commercial lending practice, it is likely that the amount of UK income tax payable going forward would be higher, which would reduce net income and Shareholder returns.
Since 1 January 2007 there has been legislation in place in the United Kingdom to enable qualifying companies (and groups) to apply for Real Estate Investment Trust (REIT) status. A company (or group) carrying on Qualifying Property Rental Business may give notice to become a REIT, subject to meeting a number of initial and on-going conditions.
The main tax advantage of the REIT Regime is that the profits (i.e. income and gains) of a REIT's Qualifying Property Rental Business are exempt from UK income tax and corporation tax. In very broad terms, what the regime seeks to achieve is to replicate as far as possible the tax treatment that would apply if the shareholders held UK property directly, by moving the taxation point from the companies holding properties (within the REIT Group) to the shareholders. This is administered by the application of withholding tax on distributions made by the principal company of the REIT Group.
Although the principal rationale for the Proposals is to improve Shareholder returns relative to the position as if the Proposals were not adopted, there may also be a longer term benefit from converting to a REIT in terms of improved liquidity as a result of being able to access a wider potential investor base.
In order to facilitate the Group qualifying as a REIT, certain changes are required to the Articles. These changes take account of the REIT Regime, specifically the rules regarding the payment of dividends to Excessive Shareholders and the requirement that the Company (as principal member of a REIT Group) be solely UK resident for tax purposes.
The purpose of this document is to provide you with details of the Proposals and to set out the reasons why the Directors are recommending that you vote in favour of the Resolution at the Extraordinary General Meeting. The notice convening the Extraordinary General Meeting is set out at the end of this document.
If approved by Shareholders, the New Articles will only take effect when the Board notifies HMRC of its intention to become a REIT, which it would expect to do during May 2015. The Extraordinary General Meeting will be held at Trafalgar Court, Les Banques, St. Peter Port, Guernsey GY1 3QL at 10.00 a.m. on 28 April 2015. There is also enclosed a Form of Proxy to enable you to vote on the resolution should you be unable to attend the meeting.
A REIT is a company that either itself owns and operates a property rental portfolio, which can be commercial, residential or any other type of commercially let property, or comprises a group of companies which carries out these activities. Under the REIT Regime, at least 90 per cent. of the net rental income arising in the Qualifying Property Rental Business for each accounting period must be distributed to shareholders and in return, provided certain conditions are met, the REIT Group is exempt from UK corporation tax and income tax on income and gains relating to its Qualifying Property Rental Business (i.e. broadly the property rental business of UK resident members of the REIT Group and the property rental business in the UK of non-UK resident members of the REIT Group).
REITs are intended to enable the income from rented property assets to be generated in a tax efficient manner and to ensure that the net return for shareholders from investing in property are broadly consistent with returns from direct property investment.
A group of companies which elects for REIT status is permitted to carry on both tax-exempt property rental activities and other, taxable activities, subject to certain restrictions which are set out in more detail in Part II of this document.
The Board believes that the Company and, where relevant, the Group should currently satisfy the relevant conditions to be eligible for REIT status (save for the condition in relation to tax residency which is considered in more detail below in the sub paragraph headed "Board composition and tax residency of the Company") and the Board expects the Group to continue doing so in the future.
Prior to 17 July 2012, companies and groups entering the REIT Regime were required to pay a one off charge equal to 2 per cent. of the value of their property assets. This conversion charge has been removed and if the Company were now to convert to a REIT, the conversion charge would not apply.
The income tax charge suffered by the Group for the period ended 31 March 2014 was £153,000. For the year ended 31 March 2015, it is estimated that the income tax charge suffered by the Group will increase to £198,000.
As noted above, the income tax payable by the Group to date has been computed with reference to the ATCA agreed between SREIT PL and HMRC which determines the maximum amount of interest which is deductible on intra-group loans for SREIT PL. The ATCA expired on 31 March 2015 and the Board has sought advice from its tax advisors as to the likelihood of agreeing a new ATCA on the same or similar terms. The level of deductible interest permitted by HMRC under an ATCA is assessed with reference to current commercial lending practice and, based on current practice, the Company's tax advisors estimate that UK income tax payable is likely to increase to between £1,450,000 and £1,700,000 per annum.
By converting to a REIT, the Group will no longer be subject to UK income tax on the rental income from its Qualifying Property Rental Business, provided that it meets certain conditions. This should effectively reduce the overall burden of UK taxation for most Shareholders in respect of the Qualifying Property Rental Business. The removal of this tax burden in relation to the Group's Qualifying Property Rental Business should increase net income and the overall profitability of the Group.
As noted above, an ancillary benefit of the globally recognised "REIT brand" is the ability to access a wider investor base, which may for example improve liquidity and demand for the Company's Ordinary Shares.
It is not currently proposed that any changes will be made to the Company's investment objective and policy as a consequence of conversion to a REIT.
Electing for REIT status will not change the legal status of the Company, its country of incorporation or its share capital. The Company would continue to be an Authorised Closedended investment scheme in Guernsey (as long as it remains incorporated and administered in Guernsey and complies with the POI Law and the Rules (being the rules under which the Company was established in Guernsey)).
The Company's register of members will continue to be maintained in Guernsey.
As mentioned above, in order to be eligible for REIT status, the Company (as the principal member of the Group) must be UK tax resident and not tax resident in any other jurisdiction. To become tax resident in the United Kingdom the Company would move its central management and control from Guernsey to the United Kingdom. This means that, once the Company has entered the REIT Regime, future Board and Shareholder meetings (including the annual general meeting) will be held in the United Kingdom.
Reflecting this move in central management and control, it is proposed that Alison Ozanne will retire from the Board on the date that the Company enters the REIT Regime, being replaced by Stephen Bligh. Stephen Bligh is a fellow of the Institute of Chartered Accountants in England & Wales. He is Chairman of the Audit and Risk Committee for the Department of Business, Innovation and Skills and was an audit partner for 34 years with KPMG, specialising in the audit of FTSE 350 companies in property, construction, transport and professional firms.
The Board composition is currently under review given that several directors have served on the Board for over 9 years. Any proposed changes will be put forward at the Company's AGM in September 2015.
Whilst it is proposed that the Company will become UK tax resident, it is not intended that the tax residency of the property owning subsidiaries which are currently non-UK resident will change.
Following conversion to REIT status, the Company intends to maintain the same level of quarterly dividend payments as it currently makes. Based on the current level of dividends, this would exceed the 90 per cent. distribution condition under the REIT Regime, described below. The quarterly dividend of the Company for the period from 1 January 2015 to 31 March 2015, which is expected to be paid in May 2015, will be made in the normal way and will be paid free of any withholding tax.
A dividend paid by the Company relating to profits or gains of the Qualifying Property Rental Business of the members of the Group (other than gains arising to non-UK resident members of the Group) is referred to as a "PID" or a "Property Income Distribution". Other normal dividends paid by the Company (including dividends relating to the Residual Business) are referred to as "Non-PID Dividends".
As a principal company of a REIT Group, the Company will be required (to the extent permitted by law) to distribute to Shareholders (by way of cash or stock dividend), on or before the filing date for the principal company's tax return for the accounting period in question, at least 90 per cent. of the Group's property rental business profits as calculated for tax purposes (broadly, calculated using normal UK corporation tax rules) for the UK resident members of the REIT Group in respect of their Qualifying Property Rental Business and of the non-UK resident members of the REIT Group insofar as they are derived from their UK Qualifying Property Rental Business arising in each accounting period (the "90 per cent. distribution condition"). Failure to meet this requirement will result in a tax charge levied on the Company and calculated by reference to the extent of the failure.
Within the REIT Regime, distributions made by the Company may, in the hands of the Shareholders, comprise PIDs, Non-PID Dividends or a combination of the two. Under the REIT Regime, both PIDs and Non-PID Dividends are capable of being satisfied by stock dividends (in lieu of cash dividends). Where the Company distributes amounts over and above the minimum 90 per cent. distribution condition (as it is expected will be the case), the categorisation of these distributions as PIDs or Non-PID Dividends for UK tax purposes will depend on the source of the relevant profits (as attributed under specific rules set out in the tax legislation) and on any relevant designation made by the Company. For further detail as to the attribution of profits and gains for the purposes of the PID rules, please see Part II of this document.
As noted above, following conversion to REIT status, the Company intends to maintain the same level of quarterly dividend payments as it currently makes. Looking forward, the precise proportion of recurring property rental income that the Group distributes may vary between years. Ordinarily, the Board would expect to distribute a high proportion (including the mandatory PID element) of recurring net property rental earnings, on the basis of adjusted earnings per share as reported under IFRS. A proportion of trading profits and other residual income (if any) may also be distributed, to the extent the Board regards those earnings as sustainable. Capital gains arising on the disposal of investment properties will, ordinarily, be retained and reinvested within the business to support future growth.
PIDs will be paid subject to deduction of basic rate income tax (currently 20 per cent.) unless the Company is satisfied that the relevant Shareholder qualifies for gross payment (which will depend on the particular circumstances and status of the Shareholder). For that purpose, the Company will require such Shareholders to submit a valid claim form (copies of which will be available on request from the Company's Registrars, Computershare Investor Services (Guernsey) Limited). A general guide to the treatment of PIDs for the principal types of Shareholders is set out in Part III of this document. Non-PID Dividends will not be subject to UK withholding tax.
The comments in this document relating to the tax treatment of Shareholders are provided for general guidance only. Shareholders who are in any doubt concerning the taxation implications of any matters reflected here should consult their professional advisers.
Within the REIT Regime, a tax charge may be levied on the Company if it makes a distribution to an Excessive Shareholder unless the Company has taken reasonable steps to avoid such a distribution being paid. Shareholders should note that this restriction only applies to Shareholders that are bodies corporate or are deemed to be bodies corporate for these purposes. The tax charge should not generally arise in respect of Shareholders which are nominees holding Ordinary Shares (and the relevant dividends) on behalf of other persons who are not themselves Excessive Shareholders.
Under the REIT Regime an Excessive Shareholder is referred to as a "holder of excessive rights" which, broadly, means a company or other relevant entity treated as a body corporate which either directly or indirectly (i) is beneficially entitled to 10 per cent. or more of the Company's dividends or other distributions; (ii) is beneficially entitled to 10 per cent. or more of the Company's share capital; or (iii) controls 10 per cent. or more of the voting rights in the Company.
The background to the charge recognises that in certain circumstances such Shareholders resident in jurisdictions with favourable double tax agreements with the UK can reclaim all or part of the UK income tax withheld on a distribution (e.g. on PIDs). The charge seeks to collect from the Company an amount of UK corporation tax equivalent to the basic rate income tax liability on the dividend irrespective of the tax treatment of the Shareholder.
Although the Board is not currently aware (based on the information available to it) of any Shareholders who would constitute Excessive Shareholders, the Board considers it appropriate that the Company should put in place the mechanisms in accordance with the guidance issued by HMRC by which the Company can avoid the imposition of such a tax charge in circumstances where an Excessive Shareholding arises following its entry into the REIT Regime. The proposed changes to the Articles will give the Board the powers it needs to demonstrate to HMRC that such "reasonable steps" have been taken. These powers include, where necessary, the power to withhold payment of dividends to persons that the Company considers to be Excessive Shareholders. A description of the New Articles is set out in more detail in Part IV of this circular.
The New Articles contain amendments to the existing Articles to facilitate the Company qualifying as a REIT as well as certain other minor amendments. A description of the proposed amendments to the Articles is set out in more detail in Part IV of this document. The adoption of the New Articles is conditional upon the approval of Shareholders at the Extraordinary General Meeting and, if approved by Shareholders, the New Articles will take effect only when the Board notifies HMRC of its intention to become a REIT, which it expects to do during May 2015.
A copy of the existing Articles and the New Articles marked to show the proposed changes will be available during normal business hours (Saturdays, Sundays and public holidays excepted) at the registered office of the Company and at the offices of Stephenson Harwood LLP, 1 Finsbury Circus, London EC2M 7SH up to and including close of business on 28 April 2015 and at the venue of the Extraordinary General Meeting for at least 15 minutes prior to the start of the meeting and up until the close of the meeting.
This legislation provides that a company satisfying the conditions for REIT status may elect for the REIT Regime to apply with effect from a date that must be specified in the written notice given to HMRC. Subject to the passing of the Resolution at the Extraordinary General Meeting to be held on 28 April 2015, the Board intends to give written notice to HMRC for the Company to become the principal company of a REIT Group during May 2015. A new accounting period for tax purposes will begin on the date of entry into the REIT Regime.
The Proposals are conditional on the approval by Shareholders of the Resolution to be proposed at the Extraordinary General Meeting of the Company which has been convened for 10.00 a.m. on 28 April 2015. At this Extraordinary General Meeting, Shareholders will be asked to consider and, if thought fit, approve the adoption of the New Articles. This resolution will be proposed as a special resolution which requires a majority of at least 75 per cent. of members entitled to vote and present in person or by proxy to vote in favour in order for it to be passed.
All Shareholders are entitled to attend and vote at the Extraordinary General Meeting. In accordance with the Articles, all Shareholders entitled to vote and present in person or by proxy at the Extraordinary General Meeting shall upon a show of hands have one vote and upon a poll shall have one vote in respect of each Ordinary Share held. In order to ensure that a quorum is present at the Extraordinary General Meeting, it is necessary for two or more Shareholders holding 5 per cent. or more of the voting rights applicable at such meeting to be present in person or by proxy.
The formal notice convening the Extraordinary General Meeting is set out on pages 25 to 26 of this document.
The Commission has been notified of the Proposals pursuant to Part 5 of the Rules.
Shareholders will find enclosed with this document a personalised Form of Proxy for use at the Extraordinary General Meeting. Shareholders are asked to complete and return the Form of Proxy in accordance with the instructions printed thereon to the Company's Registrar, Computershare Investor Services (Guernsey) Limited at The Pavilions, Bridgwater Road, Bristol BS99 6ZY, or deliver it by hand during office hours only to the same address so as to be received as soon as possible and in any event by no later than 10.00 a.m. on 24 April 2015.
Shareholders are requested to complete and return a Form of Proxy whether or not they wish to attend the Extraordinary General Meeting. The return of a Form of Proxy will not prevent Shareholders from attending the Extraordinary General Meeting and voting in person should they so wish.
The Board considers that the Proposals are in the best interests of the Company and its Shareholders as a whole. Accordingly the Board unanimously recommends that Shareholders vote in favour of the Resolution to be proposed at the Extraordinary General Meeting. The Directors intend to vote in favour of the Resolution in respect of their holdings of Ordinary Shares amounting to 304,880 Ordinary Shares in aggregate (representing approximately 0.06 per cent. of the issued share capital of the Company as at 30 March 2015 (being the latest practicable date prior to the publication of this document)).
Yours faithfully
Chairman
The summary of the REIT Regime applicable in the UK (the "REIT Regime") below is intended to be a general guide only and constitutes a high-level summary of the Company's understanding of certain aspects of current UK law and HMRC practice relating to the REIT Regime, each of which is subject to change, possibly with retrospective effect. It is not an exhaustive summary of all applicable legislation in relation to the REIT Regime. The REIT Regime was introduced by the UK Finance Act 2006 and subsequently re-written into Part 12 of CTA 2010.
Investing in property through a UK taxable corporate investment vehicle has the disadvantage that, in comparison to a direct investment in property assets, some categories of shareholder may effectively bear tax twice on the same income – first, indirectly, when the corporate investment vehicle pays direct tax on its profits, and secondly, directly (subject to any available exemption or with the benefit of a tax credit) when the shareholder receives a dividend. UK non-tax paying entities, such as UK pension funds, bear tax indirectly when investing through a taxable closedended corporate vehicle that is not a REIT which they would not suffer if they were to invest directly in the property assets.
As part of a group UK REIT, UK resident REIT Group members would no longer pay UK direct taxes on income and capital gains from their "Qualifying Property Rental Businesses" (being businesses within the meaning of section 205 of CTA 2009 or an overseas property business within the meaning of section 206 of CTA 2009, but in each case, excluding certain specified types of business (as per section 519(3) of CTA 2010) in the UK and elsewhere and non-UK resident REIT Group members with a UK Qualifying Property Rental Business would no longer pay UK direct taxes on income from their UK Qualifying Property Rental Businesses, provided that certain conditions are satisfied. Instead, distributions in respect of the tax-exempt Qualifying Property Rental Businesses will be treated for UK tax purposes as UK property income in the hands of shareholders. Part III contains further detail on the UK tax treatment of shareholders in a REIT.
Gains arising in UK resident companies on the disposal of shares in property owning companies may, however, be subject to UK corporation tax. In addition, companies which are members of a REIT Group will remain subject to overseas direct taxes in respect of any property rental business carried on outside the UK, and UK and overseas direct taxes are still payable in respect of any income and gains from the REIT Group's businesses (generally including any property trading business) not included in the Qualifying Property Rental Business (the "Residual Business").
Whilst within the REIT Regime, the Qualifying Property Rental Business will be treated as a separate business for corporation tax purposes from the Residual Business and a loss incurred by the Qualifying Property Rental Business cannot be set off against profits of the Residual Business (and vice versa).
A dividend paid by the Company relating to profits or gains of the Qualifying Property Rental Business of the members of the Group (other than gains arising to non-UK resident members of the Group) is referred to as a "PID" or a "Property Income Distribution". Other normal dividends paid by the Company (including dividends relating to the Residual Business) are referred to as "Non-PID Dividends". Under the REIT Regime, both PIDs and Non-PID Dividends are capable of being satisfied by stock dividends. Part III contains further detail on the UK tax treatment of shareholders in a REIT.
In this document, references to a company's accounting period are to its accounting period for UK corporation tax purposes. This period can differ from a company's accounting period for other purposes.
A group becomes a group REIT by the principal company serving notice on HMRC before the beginning of the first accounting period for which it wishes the group members to become a REIT. In order to qualify as a REIT, the REIT Group must satisfy certain conditions set out in CTA 2010. A non-exhaustive summary of the material conditions is set out below. Broadly, the principal company must satisfy the conditions set out in paragraphs A to D and F below and the REIT Group as a whole must satisfy the conditions set out in paragraph E.
The principal company must be solely UK resident for tax purposes, its shares admitted to trading on a recognised stock exchange and it must not be an open-ended investment company. The principal company's shares must either be listed on a recognised stock exchange throughout each accounting period or traded on a recognised stock exchange in each accounting period. This listing/traded requirement is relaxed in the REIT Group's first three accounting periods but the REIT Group can benefit from this relaxation only once. The principal company must also not (apart from in circumstances where it is a close company only because it has as a participator an Institutional Investor as defined in section 528(4A) of CTA 2010) be a "close company" (as defined in section 439 of CTA 2010 as amended by section 528(5) of CTA 2010) (the "close company condition"). In summary, the close company condition amounts in basic terms to a requirement that the company cannot be under the control of 5 or fewer participators, or of participators who are directors (and for these purposes "participators" is defined in section 454 of CTA 2010), subject to certain exceptions. The close company condition is relaxed for the REIT Group's first three years.
The principal company must have only one class of ordinary share in issue. The only other shares it may issue are non-voting restricted preference shares, including shares which would be restricted preference shares but for the fact that they carry a right of conversion into shares or securities in the Company.
The principal company must not be party to any loan in respect of which the lender is entitled to interest which exceeds a reasonable commercial return on the consideration lent or where the interest depends to any extent on the results of any of its business or on the value of any of its assets (subject to exceptions). In addition, the amount repayable must either not exceed the amount lent or must be reasonably comparable with the amount generally repayable (in respect of an equal amount lent) under the terms of issue of securities listed on a recognised stock exchange.
The principal company must prepare financial statements (the "Financial Statements") in accordance with statutory requirements set out in Sections 532 and 533 of CTA 2010 and submit these to HMRC. In particular, the Financial Statements must contain the information about the Qualifying Property Rental Business and the Residual Business separately.
The REIT Group must satisfy, amongst other things, the following conditions in respect of each accounting period during which the REIT Group is to be treated as a REIT:
In addition, the Qualifying Property Rental Business does not include any property which is classified as owner-occupied in accordance with generally accepted accounting practice (subject to certain exceptions).
The principal company of the REIT (which in this case will be the Company) will be required (to the extent permitted by law) to distribute to shareholders (by way of cash or stock dividend), on or before the filing date for the principal company's tax return for the accounting period in question, at least 90 per cent. of the Group's property rental business profits as calculated for tax purposes (broadly, calculated using normal UK corporation tax rules) of the UK resident members of the REIT Group in respect of their Qualifying Property Rental Business and of the non-UK resident members of the REIT Group insofar as they are derived from their UK Qualifying Property Rental Business arising in each accounting period (the "90 per cent. distribution condition"). Failure to meet this requirement will result in a tax charge calculated by reference to the extent of the failure, although in certain circumstances where the profits of the period are increased from the amount originally shown in the Financial Statements delivered to HMRC, this charge can be mitigated if an additional dividend is paid within a specified period which brings the amount of profits distributed up to the required level. For the purpose of satisfying this distribution condition, any dividend withheld in order to comply with the Excessive Shareholder rule (as described below) will be treated as having been paid.
Finance Act 2013 enacted changes to Part 12 of CTA 2010 in order to facilitate investments by REITs in other REITs. The legislation exempts a distribution of profits or gains of the Qualifying Property Rental Business of one REIT to another REIT. The investing REIT is required to distribute 100 per cent. of the distributions to its shareholders. The investment by one REIT in another REIT will effectively be treated as a Qualifying Property Rental Business asset for the purposes of the 75 per cent. assets condition.
As a REIT, the REIT Group will not pay UK corporation tax on profits and gains from the Qualifying Property Rental Business. Corporation tax will still apply in the normal way in respect of the Residual Business.
Corporation tax could also be payable were the shares in a member of the REIT Group to be sold (as opposed to property involved in the Qualifying Property Rental Business). The REIT Group will also continue to pay all other applicable taxes including VAT, stamp duty land tax, stamp duty, PAYE, rates and national insurance contributions in the normal way.
When the principal company of a REIT Group pays a dividend, that dividend will be a PID to the extent necessary to satisfy the 90 per cent. distribution condition (and where it relates to profits or gains of the Qualifying Property Rental Business of the members of the Group, other than gains arising to non-UK resident members of the Group). If the dividend exceeds the amount required to satisfy that test, the REIT may determine that all or part of the balance is a Non-PID Dividend to the extent there are any profits of the current or previous years which derive from activities of a kind in respect of which corporation tax is chargeable in relation to income (e.g. profits of the Residual Business). Any remaining balance of the dividend (or other distribution) will generally be deemed to be a PID, firstly in respect of the remaining income profits of the Qualifying Property Rental Business for the current year or previous years and secondly, in respect of capital gains which are exempt from tax by virtue of the REIT Regime (in either case distributed as a PID). Any remaining balance will be attributed to other Non-PID Dividends.
Subject to certain exceptions, PIDs will be subject to withholding tax at the basic rate of income tax (currently 20 per cent). Further details of the United Kingdom tax treatment of certain categories of shareholder while the Group is in the REIT Regime are contained in Part III.
If the REIT Group ceases to be a REIT, dividends paid by the principal company may nevertheless be PIDs to the extent they are paid in respect of profits and gains of the Qualifying Property Rental Business that arose whilst the REIT Group was within the REIT Regime.
A tax charge will arise if, in respect of any accounting period, the REIT Group's ratio of income profits (before capital allowances) to financing costs (in both cases in respect of its Qualifying Property Rental Business) is less than 1.25:1. The amount (if any) by which the financing costs exceed the amount of those costs which would cause that ratio to equal 1.25 (subject to a cap of 20 per cent. of the income profits) is chargeable to corporation tax.
The principal company of a REIT may become subject to an additional tax charge if it pays a dividend or other distribution to, or in respect of, a person beneficially entitled, directly or indirectly, to 10 per cent. or more of the principal company's distributions or share capital or that controls, directly or indirectly, 10 per cent. or more of the voting rights in the principal company. Shareholders should note that this tax charge only applies where a distribution is paid to persons that are companies or are treated as bodies corporate in accordance with the law of an overseas jurisdiction with which the UK has a double taxation agreement, or in accordance with such a double taxation agreement. It does not apply where a nominee has such a 10 per cent. or greater holding unless the persons on whose behalf the nominee holds the shares (and distributions on them) meet the test in their own right.
This tax charge will not be incurred if the principal company has taken reasonable steps to avoid making distributions to such a person. HMRC guidance describes certain actions that might be taken to show it has taken such "reasonable steps". One of these actions is to include restrictive provisions in the principal company's articles of incorporation to address this requirement. The New Articles (as summarised in Part IV of this document) are consistent with the provisions described in the HMRC guidance.
A property development undertaken by a member of the REIT Group can be within the Qualifying Property Rental Business provided certain conditions are met. However, if the costs of the development exceed 30 per cent. of the fair value of the asset at the later of: (a) the date on which the relevant company becomes a member of a REIT, and (b) the date of the acquisition of the development property, and the REIT sells the development property within the three years beginning with the completion of the development, the property will be treated as never having been part of the Qualifying Property Rental Business for the purposes of calculating any gain arising on disposal of the property (and any tax exempt market value deemed disposal of the property or entry to the REIT Regime will be ignored). Any gain will be chargeable to corporation tax.
If a member of the REIT Group disposes of a property (whether or not a development property) in the course of a trade, the property will be treated as never having been within the Qualifying Property Rental Business for the purposes of calculating any profit arising on disposal of the property (and any tax exempt market value deemed disposal of the property or entry to the REIT Regime will be ignored). Any profit will be chargeable to corporation tax.
In general, where an asset owned by a UK resident member of the REIT Group and used for the Qualifying Property Rental Business begins to be used for the Residual Business, there will be a tax exempt market value disposal of the asset. Where an asset owned by a UK resident member of the REIT Group and used for the Residual Business begins to be used for the Qualifying Property Rental Business, this will generally constitute a taxable market value disposal of the asset for UK corporation tax purposes, except for capital allowances purposes.
The REIT Regime also makes certain provisions for corporate joint ventures. If one or more members of the REIT Group are beneficially entitled, in aggregate, to at least 40 per cent. of the profits available for distribution to equity holders in a joint venture company and at least 40 per cent. of the assets of the joint venture company available to equity holders in the event of a winding up, that joint venture company (or its subsidiaries) is carrying on a Qualifying Property Rental Business which satisfies the 75 per cent. profits condition and the 75 per cent. assets condition (the "JV company") and certain other conditions are satisfied, the principal company may, by giving notice to HMRC, elect for the assets and income of the JV company to be included in the Qualifying Property Rental Business for tax purposes (on a proportionate basis). In such circumstances, the income of the JV company will count towards the 90 per cent. distribution condition and the 75 per cent. profits condition, and its assets will count towards the 75 per cent. assets condition (on a proportionate basis).
The REIT Group's share of the underlying income and gains arising from any interest in a tax transparent vehicle carrying on a Qualifying Property Rental Business, including offshore unit trusts or partnerships, should automatically fall within the REIT tax exemption, and will count towards the 75 per cent. profits and assets conditions, provided the REIT Group is entitled to more than 20 per cent. of the profits and assets of the relevant tax transparent vehicle. The REIT Group's share of the Qualifying Property Rental Business profits arising will also count towards the 90 per cent. distribution condition.
If a REIT is taken over by another REIT, the acquired REIT does not necessarily cease to be a REIT and will, provided the conditions are met, continue to enjoy tax exemptions in respect of the profits of its Qualifying Property Rental Business and capital gains on disposal of properties in the Qualifying Property Rental Business.
The position is different where a REIT is taken over by an acquiror which is not a REIT. In these circumstances, the acquired REIT is likely in most cases to fail to meet the requirements for being a REIT (unless the acquirer qualifies as an Institutional Investor and the REIT's shares continue to be admitted to trading on a recognised stock exchange and are either listed or traded) and will therefore be treated as leaving the REIT Regime at the end of its accounting period preceding the takeover and ceasing from the end of that accounting period to benefit from tax exemptions on the profits of its Qualifying Property Rental Business and capital gains on disposal of property forming part of its Qualifying Property Rental Business. The properties in the Qualifying Property Rental Business are treated as having been sold and reacquired at market value for the purposes of corporation tax on chargeable gains immediately before the end of the preceding accounting period. These disposals should be tax exempt as they are deemed to have been made at a time when the acquired REIT was still in the REIT Regime and future capital gains on the relevant assets will therefore be calculated by reference to a base cost equivalent to this market value. If the acquired REIT ends its accounting period immediately prior to the takeover becoming unconditional in all respects, dividends paid as PIDs before that date should not be recharacterised retrospectively as normal dividends.
If HMRC thinks that a member of the REIT Group has been involved in certain tax avoidance arrangements, it may cancel the tax advantage obtained and, in addition, impose a tax charge equal to the amount of the tax advantage. These rules apply to both the Residual Business and the Qualifying Property Rental Business. In addition, if HMRC consider that the circumstances are sufficiently serious or if two or more notices in relation to the obtaining of a tax advantage are issued by HMRC in a ten year period, they may require the REIT Group to exit the REIT Regime.
The principal company of the REIT Group can give notice to HMRC that it wants to leave the REIT Regime at any time. The Board retains the right to decide that the REIT Group should exit the REIT Regime at any time in the future without Shareholder consent if it considers this to be in the best interests of the REIT Group.
If the REIT Group (or a member of the REIT Group) voluntarily leaves the REIT Regime within ten years of joining and disposes of any property that was involved in its Qualifying Property Rental Business within two years of leaving, any uplift in the base cost of the property as a result of the deemed disposals on entry into and exit from the REIT Regime (or as a movement from the Qualifying Property Rental Business to the Residual Business) is disregarded in calculating the gain or loss on the disposal.
It is important to note that it cannot be guaranteed that the Company or the REIT Group will comply with all of the REIT conditions and that the REIT Regime may cease to apply in some circumstances. HMRC may require the REIT Group to exit the REIT Regime if:
In addition, if the conditions for REIT status relating to the share capital of the principal company and the prohibition on entering into loans with abnormal returns are breached or the principal company ceases to be UK resident, becomes dual resident or an open-ended company, it will automatically lose REIT status. Where the REIT Group automatically loses REIT status or is required by HMRC to leave the REIT Regime within ten years of joining, HMRC has wide powers to direct how it is to be taxed, including in relation to the date on which the REIT Group is treated as exiting the REIT Regime.
Shareholders should note that it is possible that the REIT Group could lose its status as a REIT as a result of actions by third parties (for example, in the event of a successful takeover by a company that is not a REIT, unless the acquirer qualifies as an Institutional Investor and the REIT's shares continue to be admitted to trading on a recognised stock exchange and are either listed or traded) or other circumstances outside the REIT Group's control.
The statements set out below are intended only as a general guide to certain aspects of current UK tax law and HM Revenue & Customs "HMRC") published practice as at the date of this document and apply only to certain Shareholders resident for tax purposes in the UK (save where express reference is made to non-UK resident persons). The summary does not purport to be a complete analysis or listing of all the potential tax consequences of holding Ordinary Shares. Prospective purchasers of Ordinary Shares are advised to consult their own independent tax advisers concerning the consequences under UK tax law of the acquisition, ownership and disposition of Ordinary Shares.
The following paragraphs relate only to certain limited aspects of the United Kingdom taxation treatment of PIDs and Non-PID Dividends paid by the Company, and to disposals of shares in the Company, in each case after the Company becomes a REIT. The statements are not applicable to all categories of Shareholders, and in particular are not addressed to (i) Shareholders who do not hold their Ordinary Shares as capital assets or investments or who are not the absolute beneficial owners of those shares or dividends in respect of those shares, (ii) some Shareholders who own (or are deemed to own) ten per cent. or more of the share capital or of the voting power of the Company or are entitled to ten per cent. or more of the Company's distributions, (iii) special classes of Shareholders such as dealers in securities, broker-dealers, insurance companies, trustees of certain trusts and investment companies, (iv) Shareholders who hold Ordinary Shares as part of hedging or commercial transactions, (v) Shareholders who hold Ordinary Shares in connection with a trade, profession or vocation carried on in the UK (whether through a branch or agency or otherwise), (vi) Shareholders who hold Ordinary Shares acquired by reason of their employment, (vii) Shareholders who hold Ordinary Shares in a personal equity plan or an individual savings account or (viii) Shareholders who are subject to UK taxation on a remittance basis, or (ix) Shareholders who are not resident in the UK for tax purposes (save where express reference is made to non-UK resident Shareholders).
Shareholders who are in any doubt about their tax position, or who are subject to tax in a jurisdiction other than the United Kingdom, should consult their own appropriate independent professional adviser without delay, particularly concerning their tax liabilities on PIDs, whether they are entitled to claim any repayment of tax, and, if so, the procedure for doing so.
Subject to certain exceptions, a PID will generally be treated in the hands of Shareholders who are individuals as the profit of a single UK property business (as defined in Part 3 of the Income Tax (Trading and Other Income) Act 2005). A PID is, together with any property income distribution from any other company to which Part 12 of CTA 2010 applies, treated as a separate UK property business. Income from any other UK property business (a "different UK property business") carried on by the relevant Shareholder must be accounted for separately. This means that any surplus expenses from a Shareholder's different UK property business cannot be offset against a PID as part of a single calculation of the profits of the Shareholder's UK property business. A Shareholder who is subject to income tax at the basic rate will be liable to pay income tax at 20 per cent. on the PID. Higher rate taxpayers will be subject to tax at 40 per cent. and additional rate taxpayers at 45 per cent.. No dividend tax credit will be available in respect of PIDs. However, credit will be available in respect of the basic rate tax withheld by the Company (where required) on the PID.
Please see also section 3 (Withholding tax and PIDs) below.
Subject to certain exceptions, a PID will generally be treated in the hands of Shareholders who are within the charge to corporation tax as profit of a UK property business (as defined in Part 4 of CTA 2009) ("Part 4 property business"). A PID is, together with any property income distribution from any other company to which Part 12 of CTA 2010 applies, treated as a separate Part 4 property business. Income from any other Part 4 property business (a "different Part 4 property business'') carried on by the relevant Shareholder must be accounted for separately. This means that any surplus expenses from a Shareholder's different Part 4 property business cannot be offset against a PID as part of a single calculation of the Shareholder's property business profits.
The main rate of UK corporation tax on such profit is currently 21 per cent. (due to reduce to 20 per cent. from 1 April 2015).
Please see also section 3 (Withholding tax and PIDs) below.
Where a Shareholder who is not resident for tax purposes in the UK receives a PID, the PID will generally be chargeable to UK income tax as profit of a UK property business and this tax will generally be collected by way of a withholding tax. Under Section 548(7) of CTA 2010, this income is expressly not non-resident landlord income for the purposes of regulations under section 971 of the Income Tax Act 2007.
Non-UK tax resident Shareholders should consult their own professional advisers on the implications in the relevant jurisdictions of any non-UK implications of receiving PIDs.
Please see also section 3 (Withholding tax and PIDs) below.
Subject to certain exceptions summarised below, the Company is required to withhold income tax at source at the basic rate (currently 20 per cent.) from its PIDs (whether paid in cash or in the form of a stock dividend). The Company will provide Shareholders with a certificate setting out the gross amount of the PID, the amount of tax withheld, and the net amount of the PID.
Where tax has been withheld at source, Shareholders who are individuals may, depending on their particular circumstances, be liable to further tax on their PID at their applicable marginal rate, incur no further liability on their PID, or be entitled to claim repayment of some or all of the tax withheld on their PID.
Shareholders who are corporate entities will generally be liable to pay corporation tax on their PID and if (exceptionally) income tax is withheld at source, the tax withheld can be set against their liability to corporation tax, or income tax which they are required to withhold, in the accounting period in which the PID is received.
It is not possible for a Shareholder to make a claim under a double taxation convention for a PID to be paid by the Company gross or at a reduced rate. The right of a Shareholder to claim repayment of any part of the tax withheld from a PID will depend on the existence and terms of any double taxation convention between the UK and the country in which the Shareholder is resident. Shareholders who are not resident for tax purposes in the UK should obtain their own tax advice concerning tax liabilities on PIDs received from the Company.
Shareholders should note that in certain circumstances the Company is not required to withhold income tax at source from a PID. These include where the Company reasonably believes that the person beneficially entitled to the PID is a company resident for tax purposes in the UK, or a company resident for tax purposes outside the UK with a permanent establishment in the UK which is required to bring the PID into account in computing its chargeable profits, or certain charities. They also include where the Company reasonably believes that the PID is paid to the scheme administrator of a registered pension scheme, the sub-scheme administrator of certain pension sub-schemes, the account manager of an individual savings account, the plan manager of a personal equity plan, or the account provider for a child trust fund, in each case, provided the Company reasonably believes that the PID will be applied for the purposes of the relevant scheme, account, plan or fund. In order to pay a PID without withholding tax, the Company will need to be satisfied that the Shareholder concerned is entitled to that treatment. For that purpose the Company will require such Shareholders to submit a valid claim form (copies of which may be obtained on request from the Registrars). Shareholders should note that the Company may seek recovery from Shareholders if the statements made in their claim form are incorrect and the Company suffers tax as a result. The Company will, in some circumstances, suffer tax if its reasonable belief as to the status of the Shareholder turns out to have been mistaken.
Non-PID Dividends are treated in exactly the same way as dividends received from UK companies that are not REITs. The Company is not required to withhold tax when paying a Non-PID Dividend (whether in cash or in the form of a stock dividend).
An individual Shareholder who is resident in the UK (for tax purposes) and who receives a Non-PID Dividend from the Company will generally be entitled to a tax credit which such Shareholder may set off against his total income tax liability on the dividend. The tax credit will be equal to ten per cent. of the aggregate of the Non-PID Dividend (the "cash dividend") and the tax credit (the "gross dividend"), which is also equal to one-ninth of the cash dividend received. A UK resident individual Shareholder who is liable to income tax at the basic rate will be subject to tax on the dividend at the rate of ten per cent. of the gross dividend, so that the tax credit will satisfy in full such Shareholder's liability to income tax on the cash dividend.
A UK resident individual Shareholder who is liable to income tax at the higher rate will be liable to tax on the gross dividend at the current rate of 32.5 per cent. A UK resident individual Shareholder who is liable to tax at the "additional" rate will be liable to tax on the gross dividend at the rate of 37.5 per cent. The gross dividend will generally be regarded as the top slice of the Shareholder's income. After taking into account the 10 per cent. tax credit, a higher rate tax payer will have to account for additional tax equal to 22.5 per cent. of the gross dividend (which is also equal to 25 per cent. of the cash dividend received). An individual paying "additional" rate income tax will have to account, after taking into account the 10 per cent. tax credit, for additional tax equal to 27.5 per cent. of the gross dividend (which is also equal to approximately 30.56 per cent. of the cash dividend received). It will not be possible for UK resident Shareholders to claim repayment of the tax credit in respect of Non-PID Dividends.
Shareholders who are within the charge to UK corporation tax will be subject to corporation tax on Non-PID Dividends paid by the Company, unless the Non-PID Dividends fall within an exempt class and certain other conditions are met. Whether an exempt class applies and whether the other conditions are met will depend on the circumstances of the particular Shareholder, although it is expected that the Non-PID Dividends paid by the Company would normally be exempt. Shareholders within the charge to UK corporation tax will not be able to claim repayment of tax credits attaching to Non-PID Dividends..
Other UK resident Shareholders who are not liable to UK tax on Non-PID Dividends, including pension funds and charities, are not entitled to claim repayment of the tax credit.
Shareholders who are resident outside the UK for tax purposes will not generally be able to claim repayment from HMRC of any part of the tax credit attaching to Non-PID Dividends received from the Company, although this will depend on the existence and terms of any double taxation convention between the UK and the country in which such Shareholder is resident. A Shareholder resident outside the UK may also be subject to foreign taxation on dividend income under local law. Shareholders who are not resident for tax purposes in the UK should obtain their own tax advice concerning their tax position on Non-PID Dividends received from the Company.
For the purpose of UK tax on chargeable gains, the amount paid by a Shareholder for Ordinary Shares will constitute the base cost of his holding. If a Shareholder disposes of all or some of his Ordinary Shares, a liability to tax on chargeable gains may arise. This will depend on the base cost and incidental costs of acquisition and disposal, which can be allocated against the proceeds, and also, the Shareholder's circumstances and any reliefs to which they are entitled. In the case of corporate Shareholders, indexation allowance will apply to the amount paid for the Ordinary Shares.
Subject to the availability of any exemptions, reliefs and/or allowable losses, a gain on disposal of Shares by individuals, trustees and personal representatives will generally be subject to capital gains tax at the rate of up to 28 per cent.
Subject to the availability of any exemptions, reliefs and/or allowable losses, a gain on disposal of Shares by a Shareholder within the charge to UK corporation tax will generally be subject to corporation tax at the current rate of 21 per cent. (due to reduce to 20 per cent. from 1 April 2015).
Shareholders who are not resident in the UK for tax purposes may not, depending on their personal circumstances, be liable to UK taxation on chargeable gains arising from the sale or other disposal of their Shares (unless they carry on a trade, profession or vocation in the UK through a branch or agency with which their Shares are connected or, in the case of a corporate Shareholder, through a permanent establishment in connection with which the Shares are held).
Individual Shareholders who are temporarily not UK resident and who dispose of all or part of their Shares during that period may be liable to UK capital gains tax on chargeable gains realised on their return to the UK, subject to any available exemptions or reliefs.
Shareholders who are resident for tax purposes outside the UK may be subject to foreign taxation on capital gains depending on their circumstances.
UK ad valorem stamp duty and SDRT will, following entry into the UK REIT Regime, generally apply in the same way in respect of transfers of Ordinary Shares as currently. In particular, provided that (as intended) the Company does not keep any register of Shareholders in the UK, no SDRT should arise in respect of an agreement to transfer Ordinary Shares.
Prospective purchasers of Ordinary Shares should consult their own tax advisers with respect to the tax consequences to them of acquiring, holding and disposing of Ordinary Shares.
As explained in the letter from the Chairman and in Part II of this document, the principal company of a Group REIT may become subject to an additional tax charge if it pays a distribution to a company (or certain bodies corporate) beneficially entitled, directly or indirectly, to 10 per cent. or more of the Ordinary Shares or dividends of the Company or which controls, directly or indirectly, 10 per cent. or more of the voting rights in the principal company (referred to in this document as Excessive Shareholders).
This additional tax charge generally only applies where a distribution is paid to (or in respect of) persons that are companies or are treated as bodies corporate in accordance with the law of an overseas jurisdiction with which the UK has a double taxation agreement, or in accordance with such a double taxation agreement. It does not generally apply where a nominee has such a 10 per cent. or greater holding unless the persons on whose behalf the nominee holds the shares (and distributions on them) meet the test in their own right.
The tax charge may not apply if the Company has taken reasonable steps to prevent a distribution to or in respect of an Excessive Shareholder. It is therefore proposed that the Articles should be amended in order to allow the Company to take reasonable steps to avoid paying a distribution to an Excessive Shareholder and to be able to demonstrate to HMRC that it has taken such reasonable steps.
The New Articles will include the new provisions which are summarised below.
The New Articles:
Shareholders should note that, for the purposes of the New Articles, the term "Excessive Shareholder" is defined in part by reference to whether payment of a distribution in respect of the shares in question could give rise to a tax charge in the Company. The definition in the New Articles is, therefore, slightly different from that used throughout the rest of this document.
The New Articles will be available for inspection during normal business hours (Saturdays, Sundays and public holidays excepted) at the registered office of the Company and at the offices of Stephenson Harwood LLP, 1 Finsbury Circus, London EC2M 7SH up to and including close of business on 28 April 2015 and at the venue of the Extraordinary General Meeting for at least 15 minutes prior to the Extraordinary General Meeting and up until the close of the meeting.
(an Authorised Closed-ended investment company incorporated with limited liability in Guernsey with registered number 41959)
Notice is hereby given that an Extraordinary General Meeting of Schroder Real Estate Investment Trust Limited (the "Company") will be held at Trafalgar Court, Les Banques, St. Peter Port, Guernsey GY1 3QL at 10.00 a.m. on 28 April 2015 to consider and, if thought fit, to pass the following resolution as a special resolution:
That with effect from the Company entering into the REIT regime pursuant to the terms of the notice given to HM Revenue & Customs in accordance with Part 12 of the Corporation Tax Act 2010, the articles of incorporation of the Company produced to the meeting and initialled by the Chairman of the meeting for the purposes of identification containing amendments required for the purposes of the Company's entry into the REIT Regime be adopted as the Company's articles of incorporation in substitution for and to the exclusion of all existing articles of incorporation.
By order of the Board Registered Office Northern Trust International Fund PO Box 255
Administration Services (Guernsey) Limited Les Banques Secretary St. Peter Port
Trafalgar Court Guernsey GY1 3QL
These notes should be read in conjunction with the notes on the Form of Proxy.
(iv) In the case of joint holders, the vote of the senior holder who tenders a vote whether in person or by proxy shall be accepted to the exclusion of the votes of the other joint holders and, for this purpose, seniority shall be determined by the order in which the names stand in the register of members of the Company in respect of the relevant joint holding.
(v) Pursuant to Article 41 of the Uncertificated Securities (Guernsey) Regulations 2009, entitlement to attend and vote at the meeting and the number of votes which may be cast thereat will be determined by reference to the Register of Members of the Company at close of business on the day which is two days before the day of the meeting. Changes to entries on the Register of Members after that time shall be disregarded in determining the rights of any person to attend and vote at the meeting.
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