Property investment
Real Estate Investment Trusts (REITs)
The announcement of March 2005 signalling the introduction of REITs was confirmed in December 2005 with the draft legislation to be set out in the Finance Bill 2006. The main proposed provisions are as follows:
REITs will be required to distribute 95% of income generated, though realised capital gains can be retained.
Companies that qualify will not pay corporation tax on qualifying rental income, or qualifying property chargeable gains.
The regime will be restricted to UK resident companies, publicly listed on a recognised stock exchange.
The purposes of introducing REITs include eliminating the double taxation problems associated with most liquid property investment vehicles, causing them to trade at a discount to net asset value, increasing access to capital for investment in both commercial and residential property thereby increasing supply.
We expect this additional liquidity to potentially also further drive down property yields and hence underpin commercial property capital values.
Investment Trusts and Offshore Property Investment Companies can also provide access to this asset class with the latter usually offering superior tax efficiency as there should be no internal charges to capital gains tax , whilst income would normally be distributed to UK resident investors on a gross basis. Such companies are usually registered in the Channel Island, but listed in London.