Treasury study to recommend introduction of UK REITs

A Treasury-commissioned study by the Bank of England’s monetary policy committee is expected to recommend the creation of REIT-style tax-transparent property investment vehicles in the UK. The recommendation is expected to be included in the Barker review on housing supply, which is published next week alongside the government’s pre-Budget report. The review is being undertaken by the Bank of England’s Kate Barker.

“The government has been in discussions with the property industry regarding the feasibility of property investment trusts”, the Treasury said yesterday. “In our discussions with industry we’ve been looking at investment trusts for both commercial and residential property.”

The news will be welcomed by the property industry, which has been lobbying for the introduction of tax-transparent industry vehicles. Leading property bodies claim that the introduction of REITs could lead to a lower cost of capital for real estate, which would encourage development.

Vehicles such as REITs distribute nearly all their taxable income to investors in exchange for exemption from capital gains and tax at the corporate level. Investors then pay tax on the dividends and capital growth at their own marginal tax rates.

In the UK, tax is currently payable both on income and capital gains, meaning that investors are effectively taxed twice, once on the shares and again on the company’s property transactions.

The Chancellor, Gordon Brown, raised the possibility of introducing REITs in April’s Budget. “Tax reforms may also have a role to play in improving the efficiency and flexibility of the property investment market”, he said.

Related News