Real Estate Investment Trust (REIT)
REITs became available in the UK on 1 January 2007 in an attempt to make it easier for UK investors to invest in commercial property.
They are similar to any other collective investment scheme in that they pool investors’ assets and use their financial strength to purchase a wide variety of quality investments at the best prices. Where other funds would invest in, for example, UK shares or government bonds, REITs invest purely in property, which can be commercial or residential.
One of the significant requirements of REITs is that the fund must distribute at least 90% of its income to shareholders in order to qualify for tax benefits the government offers to this type of investment.
These tax benefits include no tax on capital gains made or income tax on rent generated by the fund. This is to avoid a double taxation charge, as investors are still required to pay income tax on dividends they earn from the fund.
Because such a large proportion of the income earned by the fund is paid out to investors REITs can prove to be good income producing assets.
Importantly REITs allow investors to invest in a diversified portfolio of property including shopping centres, large offices, and industrial sites, without the need to purchase a property outright themselves.
Added to that is the fact that it’s so much easier to buy and sell your holding in a REIT (which could take hours or days) than it is to buy and sell a property (which could take months or years).
Tax levels, bases or reliefs referred to are those currently applying but are subject to change. The tax treatment of investments will depend on the individual circumstances of the investor.
