UK To Scrap REIT Levy

by Robert Lee, Tax-News.com, London21 October 2011

Following an informal consultation on proposed changes to the UK's Real Estate Investment Trust (REIT) regime, the government has agreed that the levy payable by companies which convert into REITS should be scrapped.

The consultation concluded in June, and focused on changes originally outlined at Budget 2011 in March. 53 written responses were received from a wide range of interested parties including REITs, house builders, fund managers and property investment companies. The Treasury also conducted around 20 meetings with a range of stakeholders.

According to the Treasury, all respondents to the consultation fully supported a proposal to scrap the 2% conversion charge payable on the market value of all the qualifying assets held at the year end (less qualifying assets held at the beginning of the accounting period). The Treasury has therefore agreed that this charge will be abolished.

UK REITs were introduced on January 1, 2007 to encourage the development of the residential letting sector and to enable shareholders in the listed real estate investment property sector to be treated for tax purposes as if they had acquired the underlying portfolio of investment property.

One of the main advantage of REITs is that they pay out most of their income in the form of dividends but do not pay income tax. However, the conversion charge has been seen by many as a barrier to the expansion of the REITs sector.

The government has also agreed that listing requirements should be relaxed to allow REITS to list on non-regulated stock exchanges. The consultation highlighted that this would lead to increased accessibility to markets for start ups and smaller companies by making it possible to raise small amounts of capital at a cheaper cost. In addition, the government believes this would mean less onerous rules relating to trading history, and lighter governance and reporting requirements which means that ongoing running costs are also reduced.

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