Published 18 December 2005
The UK Government published draft legislation on Wednesday, 14 December, for its long-awaited UK-reit structure.
It launched the formal consultation on draft clauses to be part of the Finance Bill 2006 and wants comments back by Friday 27 January.
the regime will be open to UK-resident listed companies
at least 75% of the reit’s business must relate to rental activity
a reit must have at least 3 properties, none of them representing more than 40% of total value of the rental business
other business can include development “undertaken with the purpose of generating a trading profit”
companies or groups that meet the UK-reit eligibility criteria won’t pay corporation tax on qualifying property rental income or qualifying chargeable gains
gains from non-ring-fenced business (such as development) will be subject to normal corporation tax
reits will be required to distribute at least 95% of net taxable profits on rental income, which investors will then pay tax on at their marginal rate.
Law firm CMS Cameron McKenna also noted:
the legislation looks like it will include hotels as reit-qualifying businesses
non-resident investors will be treated in the same way as residents, so presumably distributions will be treated as income from a property business and therefore taxable in the UK; whether this approach will comply with the UK’s obligations under its double-taxation treaties will need to be considered further
the Government has opted not to specify mandatory gearing requirements. Instead, the reit will be subject to tax on interest payable on its ring-fenced business exceeding an interest cover ratio of 2.5.
The Government said it remained committed to ensuring no overall loss of revenue from the introduction of UK-reit legislation.
RICS (the Royal Institution of Chartered Surveyors) said it welcomed the dialogue but felt the property industry might find the current proposals over-restrictive, particularly on the ability to borrow.