Preferred Tax Treatment of REITs Announced

Stephen Harris

25 May 2005

The best way forward for the introduction of a Real Estate Investment Trust regime in the UK would be to proceed with a straightforward tax exempt company as the basic structure for a UK REIT, even though this may lead to some initial tax loss, according to a pan-industry group, comprising the British Property Federation, the Investment Property Forum and the Royal Institution of Chartered Surveyors. The proposal has come in response to the UK Government's Discussion Paper on UK Real Estate Investment Trusts published with this year’s budget. The Discussion Paper gave a conditional commitment to the introduction of a UK REIT regime, but posed a number of technical questions that required answers before the next stage of REIT development and implementation could be started. The most significant of these concerned the potential loss of tax revenue from overseas investors in UK property. The UK Treasury asked the property industry to assemble a group of tax and legal experts to discuss with officials from both the Treasury and the Inland Revenue, and their draft response concludes that all of the other options identified would either lead to some reduction in the likely appeal of REITs as an investment vehicle or would involve significant complexities that could delay their early introduction. Liz Peace, chief executive of the BPF, speaking on behalf of the pan-industry group, said, "We have a marvellous opportunity to introduce a collective investment structure for commercial property that would bring significant benefits to the economy, open up investment opportunities to the man in the street and, provided we do not delay, establish London as the REIT centre of Europe. "We appreciate the concerns that the Government, and particularly the Inland Revenue, have regarding initial tax loss but we are confident that this will be relatively small, can be mitigated by a range of measures that our technical papers recommend and will, in any case, soon be overtaken by the enhanced investment activity that REITs will bring."