The British government has eased the entry rules for new companies seeking to become real estate investment trusts (REITS) when the enabling legislation comes into force next January. The concession by chancellor Gordon Brown is a response to bitter objections voiced by property professionals to the original framework. Stricter rules applying to joint-venture schemes have been relaxed.
The British government has eased the entry rules for new companies seeking to become real estate investment trusts (REITS) when the enabling legislation comes into force next January. The concession by chancellor Gordon Brown is a response to bitter objections voiced by property professionals to the original framework. Stricter rules applying to joint-venture schemes have been relaxed.
Stephen Herring, tax partner at BDO Stoy Hayward, said the chancellor's concession which he said made the application process far simpler. 'The relaxation of the business balance rules acknowledge the difficulty that a new fund might have in purchasing a property portfolio on or around the conversion date, ' he was quoted as saying in a statement posted on the website of the London Stock Exchange.
Fidelity International recently reported that the introduction of REITs next year will contribute to the growth of the global market for such investments. The company predicts that within five years, the market will be worth £507 bn (EUR 750 bn).
The industry successfully argued that Brown's legislation offered little or no incentive for new closed-ended companies to adopt onshore REIT status rather than the more liberal off-shore domicile regime, with a London-listing. Addressing the issue in a pre-budget report, Brown conceded that companies seeking REIT status would no longer require a stock exchange listing on the day they give official notice of the intention to become a REIT.
Perhaps more importantly, new companies will not be heavily penalised if they fail to distribute 75% of their income to shareholders within the first accounting period, Citywire News reported. Charity shareholders will also be exempt from tax on any distribution they receive from a REIT. The chancellor also signalled that pension schemes will be barred from holding more than 10% of any single REIT.
Charles Beer, head of real estate tax at KPMG, also broadly welcomed the changes introduced by the chancellor. However, he warned that the change designed to make it easier for newly established companies to become REITs may not deliver the intended benefits.
'They will have to pay the 2% entry charge on the assets they acquire during that year. It is unclear how attractive this will be to new REITs given they will have paid stamp duty on acquiring the property, and will not get any immediate benefit from the capital gains exemption,' he said.
