27 Jun 2012 13:02
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. “
Notes to Editors:
1. HMRC announced a consultation on whether to change the tax treatment of income received by a REIT when it invests in another REIT in the Budget on 21 March 2012. The consultation was opened on 4 April 2012. Interested parties had 12 weeks to respond; the consultation closed on 27 June. The Government is expected to consider all submissions and publish its response. The measures will come into effect when the Finance Bill receives Royal Assent.
2. Currently there are 23 REITS (Real Estate Investment Trusts) with a value of around £24bn. REITs are companies which invest in retail and leisure properties, warehousing, restaurants and office accommodation but there are no REITs with any sizeable housing stock. If they are listed on a recognised stock market, invest mainly in real estate and meet certain requirements as to gearing and are not close in terms of ownership, then the REITs are not taxed on rental income or gains. Instead their investors are taxed on distributions as if the distributions were rent and the investments were directly in real estate.
For more information contact:
PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See pwc.com for more information.