Real Estate Investment Trusts - REITs

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Real Estate Investment Trusts - REITs

Well established and very popular in many countries overseas such as Australia, the USA, Germany and Japan, REITs or Real Estate Investment Trusts were launched in the UK on 1 January 2007.

The Government's ultimate aim in introducing these with their attractive tax incentives is to encourage further growth in the building of new housing and commercial property by making investment more accessible to everyone.

What are REITs?

REITs will provide an opportunity for investors at every level to pay into specific trusts for land or property without the hassle and risk of direct property ownership and management. The schemes should work in a similar way to other pooled investments such as unit trusts or equity funds and shares in the trust may be bought and sold as easily as stock market shares.

The launching of REITs may also make up for some of the disappointment over the Government's u-turn in not allowing residential property to be held within pension funds. It is thought that the flexibility of the REIT structure may allow for residential property as well as commercial to be purchased through a SIPP (Self Invested Personal Pension).

REITs and Corporation Tax

Proposals are that if under REIT structure, property companies will not have to pay corporation tax which will probably encourage the majority to convert to REIT status as soon as possible. This will involve paying a conversion charge of 2% of the gross market value of any property transferred and to qualify, a company must be listed on the Stock Exchange and should be UK resident for tax purposes. 90% of net profits must also be back to investors.

A REIT would retain 22% basic tax on payments to their shareholders, with higher rate taxpayers having to fund any outstanding payments.

To ensure that the fund does not take on too much debt or new development, the Government has stipulated that 75% of income must come from property rental with the balance being made up from developments and other areas. HM Revenue & Customs will also make regular `asset tests' to ensure the correct ratio is maintained.

If you would like more information or advice about REITS or SIPPs and whether thay could provide the best type of pension or investment for you, please complete a Quick Enquiry Form above and one of our experts will contact you.

Alternatively, you can call us on local rate 0845 108 0505.