The UK government has been in talks with members of the property industry for years about the potential of real estate investment trusts (Reits), a new tax-efficient way of investing in property. If the UK sanctioned a US model, Reits would not have to pay tax on their income as long as they distributed a high proportion of the cash – usually between 50% and 60% of revenues – to shareholders.
Reits offer a way of investing in property – potentially residential as well as commercial – through a securitized, typically closed-ended and entirely tax transparent vehicle that is capable of being listed on a stock exchange.
In his 2004 budget, Chancellor Gordon Brown announced the start of a consultation process on the possible introduction of Reits into the UK. Last March, the UK treasury unveiled a top-level consultation group to advise it on the final structure of Reits. The group includes John Gellatly, director of investment banking at Credit Suisse First Boston; Liz Peace, chief executive of the British Property Federation; Phil Nicklin of Deloitte; Ros Rowe at Price WaterhouseCoopers/Royal Institution of Chartered Surveyors; Simon Clark of Linklaters; Stephen Edge of Slaughter and May; and Lucinda Bell at British Land.
One major issue still to be decided is the amount existing property companies will have to pay to convert to tax-advantaged Reits. The government is keen not to lose any potential revenue. However, the UK property industry argues that excessive conversion costs could thwart the Reits market before it begins – it is now apparent that this will not happen until 2006 at the earliest.
