NEWS // UK Real Estate Investment Trust (REITS)
1st January 2007 saw the introduction of the UK REIT which is intended to facilitate access to the UK commercial property investment market for a wider range of investors by creating a tax efficient investment vehicle. This is an exciting new opportunity for smaller investors who will now be able to invest indirectly in a diversified property portfolio by buying units which can be easily traded rather than having to find finance for the purchase of whole properties. The key benefits of UK REITS for investors are:-
Favourable tax treatment
Regular high-yield returns
Diverse investment portfolio
Liquidity – easier to buy and sell
Access to property investment for minimal outlay
Controlled debt financing
Strong corporate governance associated with a Main Market listed company.
The main advantage of UK REITS is their tax efficient nature. Historically shares in property companies have traded at a discount to the net asset value of their property assets due to the double taxation they face suppressing the value of the shares. UK REITS should address this by removing this double layer of tax as tax won’t be payable on rental or capital gains earned within a REIT. Also buying shares in a UK REIT will only be subject to stamp duty of 0.5% rather than up to 4% stamp duty land tax payable on direct property.
A UK REIT is a company which pools investor capital to buy and operate income producing real estate, either commercial or residential. At least 90% of its taxable income is distributed to shareholders, who will pay tax at their normal rate, and in return the company is exempt from paying corporation tax.
A UK REIT must be a quoted UK tax-resident company and there are requirements to limit individual shareholdings to 10% of the total equity value. Existing companies who wish to convert to a UK REIT will be charged 2% of the gross market value of the property used within its property rental business. UK REITS are expected to qualify as investments for saving products such as ISAs and CTFs, in addition to SIPPs.
This is intended to be a summary of the new provisions and is not intended to address any individual requirements.
For further details please contact Helen Mullen on 0131 226 8224
or email her at helen.mullen@mbmcommercial.co.uk