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705HProfit: financing cost ratio.

(1) In this section—

“property financing costs” means costs, being costs of debt finance or finance leases for the purposes of property rental business, which are taken into account in arriving at aggregate profits, including amounts in respect of—

(a) interest, discounts, premiums, or net swap or hedging costs, and

(b) fees or other expenses associated with raising debt finance or arranging finance leases;

“property financing costs ratio” means the ratio of the sum of property income and property financing costs of a company or group to the property financing costs of the company or group, as the case may be.

(2) This section applies to a REIT or a group REIT if the property financing costs ratio of the REIT or group REIT, as the case may be, is less than 1.25:1 for an accounting period.

(3) (a) Subject to paragraph (b), the REIT or the principal company of the group REIT, as the case may be, shall be charged to corporation tax under Case IV of Schedule D for the accounting period in respect of the amount by which the property financing costs of the REIT or group REIT, as the case may be, would have to be reduced for the property financing costs ratio to equal 1.25:1 for that accounting period.

(b) The amount mentioned in paragraph (a) shall not exceed 20 per cent of the property income of the REIT or group REIT, as the case may be.

(4) No loss, deficit, expense or allowance may be set off against the first-mentioned amount in subsection (3)(a) in charging that amount to corporation tax.

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