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705KTaxation of certain shareholders.

(1) In this section, and subject to subsection (2), “holder of excessive rights” means a person, other than a qualifying investor, who—

(a) is beneficially entitled, directly or indirectly, to at least 10 per cent of the distribution referred to in ^[2]>section 705B(1)(b)(iv)^<[2][2]>section 705B(1)(b)(vi)^<[2],

(b) is beneficially entitled to, or controls directly or indirectly—

(i) at least 10 per cent of the share capital of, or voting rights in, the REIT, or

(ii) in the case of a group REIT, to at least 10 per cent of the share capital of, or voting rights in, the principal company.

(2) Where a shareholder becomes a holder of excessive rights in a company as a result of that company becoming a REIT or the principal company of a group REIT, then the provisions of subsection (3) will not apply for a period of three years commencing from the date specified by that company in accordance with section 705E(4).

(3) Where a REIT or group REIT makes a distribution to a holder of excessive rights and the REIT or group REIT, as the case may be, has not taken reasonable steps to prevent the distribution to such a person being made, the REIT or the principal company of the group REIT, as the case may be, shall, notwithstanding the provisions of section 705G, be treated as receiving an amount of income equal to the amount of the distribution.

(4) The amount of income referred to in subsection (3) shall be chargeable to corporation tax under Case IV of Schedule D and shall be treated as income—

(a) arising in the accounting period in which the distribution is made, and

(b) against which no loss, deficit, expense or allowance may be set off.

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