Insights

Real estate Investment Trust (REITs)

  • Written By: Cherry Reynard
  • Published: Mon, 06 Aug 2018 09:08 GMT

REITs can be a tax-efficient way of investing in the property market and, with changes to tax rules removing the UK tax advantages of overseas ownership, are becoming an even more attractive proposition.

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The rules

First, a REIT is not a trust. It is a company that meets certain conditions and has elected into the preferential tax regime.

The regime was established to enable investors in UK property to buy a stake in a corporate real estate vehicle and to obtain broadly similar returns from their investment as they would have if they had invested in property directly.

The tax efficiency is driven by the fact that a REIT will not pay corporation tax on the profits and gains of its qualifying property rental business and, when distributed, those profits are taxable on the shareholder as if they were profits of a UK property business. The double layer of tax normally associated with investing through a company is removed.

The key requirements for becoming and remaining a REIT include that the company:

  • is resident in the UK and is not resident in another state for tax purposes;
  • must have its shares listed on a recognised stock exchange;
  • must not be a close company (broadly, one that is controlled by five or fewer shareholders, although the rules are relaxed for companies with at least 35% of shares listed on certain markets);
  • has a property rental business that involves at least three separate rental properties;
  • cannot have any one property, involved in the property rental business, being more than 40% of the value of all the property assets in that business; and
  • must distribute at least 90% of the (income) profits of its taxexempt business.

What are we doing with our clients?

We work with our clients to establish whether the REIT regime is appropriate for their circumstances, advising on both the requirements to qualify and the tax implications of electing in.

Once REIT status has been achieved, we are able to assist clients with reporting and monitoring ongoing qualification requirements.

DISCLAIMER
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of publication.

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Real estate, Construction

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