Corporation Tax Act 2010 section 544

Meaning of "property profits" and "property financing costs"

Section 544 defines "property profits" and "property financing costs" for the purpose of applying the profit to financing cost ratio test that UK REITs must satisfy.

• Property profits are the profits of the property rental business before deducting capital allowances, prior-period losses, or certain other adjustments, taken either from the group financial statement (for a group UK REIT) or calculated under the statutory rules (for a company UK REIT).
• Property financing costs are the costs of debt finance incurred in respect of the property rental business, but excluding any amounts owed between members of the same group and any expenses that would not be deductible in calculating profits (other than amounts disallowed solely by the corporate interest restriction rules).
• Debt finance costs include interest on borrowings, amortisation of borrowing discounts and premiums, the financing element of finance lease payments, alternative finance returns, and payments or receipts under hedging arrangements related to borrowing (including amortisation of discounts and premiums on those hedging instruments).
• A finance lease is one that would be treated as a finance lease or loan under generally accepted accounting practice, including right-of-use leases where the lessee would classify the lease as a finance lease if required to make that assessment.