PwC has welcomed proposed changes that should broaden the appeal of the Real Estate Investment Trust (REIT) regime to a wider group of investors, in its submission today to a consultation on REITs first announced in the March Budget.

The Government asked interested parties to consider the impact of REITs investing in other REITs. Stakeholders were asked for their views on modifying the REIT regime to enable a REIT, when it invests in another REIT, to receive distributions of rental income (the Property Income Distribution (PID)) without suffering tax on that income. The rationale for the change is to facilitate wider investment by REITs through new forms of joint venture.

Rosalind Rowe, head of UK real estate tax network at PwC, said:

“It is encouraging that the Government is looking at further changes to the REIT regime to remove inefficiencies and to grow the sector.

“Giving a REIT the opportunity to invest in other REITs will enable start-up REITs, with surplus cash, to provide a “REIT-like” return through investing in larger REITs while they seek property. Some REITs have polarised into one sector, now other REITs can access a sector on a flexible basis through buying shares in the market rather than committing to a fixed investment in a joint venture.

“The current rules mean that a REIT investing in another REIT would have to pay tax on the income it receives. Changing the rules would simplify the regime to enable REITs to spin off properties, increasing the number of REITs and giving investors more choice without penal tax. The REIT and the co-investor can choose when to exit, which would be easily achieved through the sale of the shares in the listed REIT which can happen independently.

“The REIT brand is strong, and investors understand it. These changes combined with this years’ repeal of the entry charge and measures to attract institutional investment are part of a continuing process to keep the regime “fresh” and responsive to a changing market. “

ENDS