REITs: property income by another route

A REIT is a listed company, but the exam wants you to see THROUGH it: the regime exempts the REIT's property rental profits and gains, and instead taxes the investor when those profits come out as a PROPERTY INCOME DISTRIBUTION (PID). That one design choice generates every rule in the topic. Because the tax point moves to the investor, a PID is taxed as PROPERTY income — non-savings rates, aggregated with other income — and none of the dividend furniture applies: no dividend allowance, no dividend rates. Because the vehicle is exempt, HMRC collects early instead: the REIT withholds income tax at the basic rate (20%) when it pays a PID, and the investor receives the cash net, with full credit — a basic-rate taxpayer usually owes nothing more, a higher-rate taxpayer pays the difference, and a non-taxpayer reclaims the deduction. And because the exemption covers only the PROPERTY RENTAL business, a REIT with other profits pays normal Corporation Tax on them and distributes them as ORDINARY dividends: one company, two streams, two treatments. The distractors are the obvious conflations — PID as dividend, PID paid gross, the REIT taxed like any company, or every distribution labelled a PID.