Ander's Market Theories

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REITs UK

Excellent News!

UK Real Estate Investment Trusts (UK-REITs)

The London Stock Exchange has responded to HM Treasury and Inland Revenue discussion paper on the introduction of a UK-REIT, in which the Government seeks the views of the industry representatives on the tax treatment of a UK-REIT vehicle. In our response, we specifically address the question of requiring a UK-REIT to be listed. The London Stock Exchange is supportive of the proposal to introduce a UK-REIT and believes there are benefits to both issuers and investors in such vehicles being either listed or admitted to trading on AIM.

Real Estate Investment Trusts, or REITs for short, are probably the most talked about and long awaited investment vehicles on the UK investment scene.

Initially developed for the US market REITs are something of a holy grail for both private and institutional investors as they offer a high-profit, low-tax investment vehicle via a broad property portfolio which is traded on the stock market.

The commercial property market in the UK has enjoyed historic success over the last decade, capturing the attention of investors all over the country. People are still feeling the sting from the series of corporate scandals and share price devaluations which have plagued traditional investments over the first half of this decade and many now seek lower risk investments which can still produce high gains.

In the past there have only been two options in entering the property investment game: you could buy a property in its entirety or buy the property in a limited partnership. The major drawback with limited partnerships is that they are subject to high taxation while the first option requires a large financial outlay. These two factors have deterred many potential investors from entering the market.

What is a REIT?

A REIT is basically an organisation with the sole purpose of owning and managing investment properties. REITs provide a string of advantages such as tax breaks, income return and inflationary protection.

This type of organisation is classed as ‘pass-through’ meaning that most of the income cash flows can be issued to the investors free of corporation tax – generating strong shareholder dividends. Such dividends are generated by rental revenue from the managed properties.

REITs are an affordable, broad and balanced way of investing in property. The real clincher is that, unlike property which is notoriously difficult and expensive to buy and sell, shares in REITs are freely tradable on the stock market and thus provide a unique level flexibility.

What most people find so attractive about REITs is their tax transparency: they are free from the capital gains tax or corporation tax characteristic of traditional property investment.

The good news is that the government whole heartedly approves of launching UK REITs and if all goes well legislation for should be passed in the 2006 Finance Bill.