The British government dashed hopes of an early reform of property investment taxation but said it still intends to introduce the necessary legislation to permit Real Estate Investment Trusts (REITs) to be set up next year.
Shares in property companies fell back on the news, underperforming a weaker London market.
By 3.40 pm, British Land shares were trading 21 pence, or 2.5 pct lower at 824 pence, while Land Securities stock fell 29 pence, or 2.1 pct, to 1353.
Elsewhere in the sector, Hammerson shares fell 22.5 pence, or 3.0 pct, to 866 while Liberty International stock slipped 7 pence to 972.5.
"I think expectations (of early legislation) actually got a bit ahead of themselves," Bridgewell Securities analyst Nan Rogers told AFX News. "People are a little bit disappointed today but the reality is that we have actually now got much better proposals than was the case in last July's document," she added.
Earlier the Treasury said in a consultation document published alongside its 2005 Budget it remained "committed, in principle, to reforming the taxation of property investment. Subject to finding a workable solution to the challenging issues raised and meeting the stated objectives, including reform at no overall cost to the Exchequer, the government aims to legislate for a UK-REIT in Finance Bill 2006."
The property industry has been lobbying for changes to the tax treatment of property investment for some time, thereby bringing Britain into line with continental European neighbours and the US. It says that among their benefits REITs will boost the level of investment in UK commercial and residential property and in turn potentially reduce the country's chronic shortage of new housing.
One tax expert, who had been hoping for the necessary legislation to be brought in this year, described the delay as "disappointing". But the head of tax at accountants Ernst & Young, Aidan O'Carroll, told AFX News it was nonetheless "better to get legislation that was fully thought out."
He said the government appeared keen to prevent investors setting up offshore investment funds in an effort to avoid paying tax altogether.
REITs are tax efficient vehicles designed to enable property investment companies to avoid paying corporation tax, thereby ensuring individual investors are taxed just once - on dividends and capital gains.
The industry argues REITs offer a more stable investment asset than equities for both institutions and smaller investors, and could therefore provide an important boost to the pensions industry.
Source: Freeman News