UK Treasury to earn £1bn REIT 'windfall'

The British Treasury is to earn a £1 bn-plus 'windfall' in 2007 from the conversion charge that property companies must pay when they opt for tax-efficient real estate investment trust (REIT) status, according to a report in a British newspaper.

The £1 bn (EUR 1.5 bn) figure is considerably higher than the Treasury's own estimates last year of a £35 mln gain in 2006-2007 and a further £155 mln gain in the following year. While the government figures take account of a loss of corporation tax, it still seems they are a big underestimation. Dave Butler, programme coordinator of UK REIT lobby group Reita, said the latest figure comes as no surprise to the industry. 'We knew from November 2006 that the figure would be close to £1 bn, as companies had to give their shareholders an estimate of the conversion charge they would have to pay.'

Noting that the Treasury had not made a big deal about the amount it would earn from the charge, Butler added: 'I suppose it is a nice Christmas present for the government, but you have to remember that it won't be all paid as once as companies have a variety of options open to them.' Some companies will make once-off payments, while others will use an instalment plan.

Nine UK property companies converted to REITs in January when the law came into force and several other properties companies as well as pub and leisure centre chains are expected to follow suit later this year or by early 2008. The conversion charge is calculated as 2% of the company's qualifying assets.

In early February, Land Securities, the largest property company in the UK and Europe, announced that it was paying a conversion charge of £315 mln. Around the same time Liberty International said it would pay £115 mln to convert to a REIT, and on Monday Hammerson said it will pay £101 mln in four quarterly instalments to cover the REIT conversion charge.