Visitor Register Now

22 March 2006 Budget Report

 Budget Report Logo

Other measures announced

UK Real Estate Investment Trusts

Companies and groups can elect to join the UK Real Estate Investment Trust (REIT) regime with effect from 1 January 2007. The regime exempts qualifying rental income and gains on disposals of investment properties from corporation tax. Any other profits or gains made by the REIT will be subject to corporation tax.

Distributions paid by the REIT out of the tax-exempt property income or gains will be treated as UK property income. They will be paid out to investors with a deduction of basic rate income tax at 22%. Dividends paid out of other profits will continue to be taxed in the usual way.

Companies or groups wanting to become REITs will pay an entry charge of 2% of the market value of their investment properties at the date of conversion. The charge will be collected at the same time as any corporation tax that is due for the first accounting period of the regime. The charge can be spread over four years, in instalments of 0.5%, 0.53%, 0.56% and 0.6% if preferred.

To join the new regime, a company must be UK resident for tax purposes and its shares must be listed on a recognised stock exchange. No one investor must be beneficially entitled to 10% or more of distributions or control 10% or more of the share capital or voting rights.

The conditions that relate to the business are:

Modification and extension of the disclosure regime

The disclosure regime is to be extended from 1 July 2006 to include the whole of income tax, corporation tax and capital gains tax. The existing regulations will be revoked and the new regulations will contain hallmarks that will fall into three groups:

Two specific hallmarks will concern:

The time limit for disclosure of schemes devised in-house is to be reduced to 30 days from the date that the scheme is implemented. Neither individuals nor businesses that are SME’s will have to disclose in-house schemes.

Alternative finance arrangements

Finance Act 2005 introduced legislation to deal with finance arrangements that are structured so that they do not involve the payment or receipt of interest – for example, those that are Shari’a compliant. Amounts equating economically to interest are charged to tax on the same basis as interest.

New provisions provide for two additional alternative finance arrangements to be taxed on a level playing field to products involving interest. They are:

The provisions are applicable to arrangements entered into on or after 6 April 2006 for income tax purposes and 1 April 2006 for corporation tax purposes.

In addition, low-cost alternative finance arrangements by employers to employees are to be taxed in the same way as equivalent loans that give rise to interest. This provision is applicable for arrangements entered into on or after 22 March 2006.

Landfill tax

The standard rate of landfill tax will be increased from £18 per tonne to £21 per tonne for standard rated disposals of waste made on or after 1 April 2006. The lower rate of tax, which applies to inactive wastes disposed at landfill, remains at £2 per tonne.

Dormant accounts of Holocaust victims

Compensation payments made by foreign banks and building societies to Holocaust victims or their heirs will be exempt from tax. Payments of interest and capital from the dormant accounts will qualify. The exemption particularly relates to payments made under the Restore UK initiative or the Claims Resolution Tribunal arrangements for dormant accounts in Switzerland. The exemption will apply to payments made in the 1996/97 tax year or any later year of assessment. In order to qualify for exemption, the original account holder must be a ‘victim of National-Socialist persecution’.