REIT Regime
A summary of the UK REIT tax regime and the tax implications for CLS Holdings plc’s shareholders.
As of January 2022, CLS elected to become a UK Real Estate Investment Trust (“REIT”), which provides several taxation benefits for investors.
Important Note: This summary of the tax consequences for shareholders is intended to provide a high-level outline only. It should not be considered as comprehensive and should not be used in place of external tax advice. CLS Holdings plc (“CLS”) bears no responsibility for losses arising from any action taken or by anyone relying on this general summary.
CLS within the UK REIT regime
CLS elected to become a UK Real Estate Investment Trust (REIT) from 1st January 2022. REITs exist in several countries and are widely regarded as a cost-efficient way to invest in property.
Historically there has been an element of double taxation for a number of classes of investors in real estate, where profits are subject to corporate tax at the property company level, with additional tax levied on dividend income at the shareholder level. The UK REIT regime has removed this double taxation and has allowed shareholders to be taxed on Property Investment Distributions (“PID”) based on their own tax status, i.e. giving shareholders a similar tax outcome as if they owned the underlying property directly.
Under the UK REIT legislation, CLS is exempt from UK corporation tax on its UK property income and gains on UK property. CLS’s non-UK property income, such as profits from its property businesses in Germany and France are taxed in the normal manner in those jurisdictions.
Tax consequences for shareholders
One of the main conditions of the UK REIT regime is that 90% of the tax-exempt property income (excluding gains) must be paid out to shareholders as a PID within 12 months of the end of the relevant accounting period.
PIDs are subject to withholding tax at 20% unless the company’s registrars have been informed by investors that they qualify for gross payment. Examples of classes of shareholder where gross dividends may be paid are:
- UK companies
- UK pension schemes
- Shares held within PEPs, ISAs and Child Trust Funds
- Charities
For shareholders who believe they are eligible to claim exemption from withholding tax on PID payments, one of the following forms should be completed and submitted to our company’s Registrar, Computershare:
Return address: Computershare Investor Services Plc, The Pavilions, Bridgwater Road, Bristol, BS99 6ZZ
It should be noted that non-UK resident shareholders resident in countries that have a double tax treaty with the UK may be able to obtain a partial refund of the tax withheld. Shareholders should seek their own advice in this regard. Download the form below.
Dividends may be solely PIDs, solely ordinary dividends, or a mixture of the two. The split between the PID and ordinary dividend elements will be announced in advance of each dividend payment.
UK tax resident individual income tax returns
Ordinary, non-PID dividends will be treated by shareholders in the same way as ordinary dividends paid before the company became a REIT. The tax-free dividend allowance will apply to the ordinary, non-PID dividends received by UK resident shareholders subject to UK income tax, where relevant.
The dividend allowance will not apply to the PID element of dividends as PIDs are generally treated for UK tax purposes as taxable property letting income in the hands of shareholders (albeit separate from any other property letting business which may be carried on). For the tax return, they are included as ‘Other Taxable Income’.
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