The Government is about to relax its rules on the treatment of UK Real Investment Trusts (REITs) in particular to rejuvenate the tarnished credit melt down buy-to-let market for residential investment:
The Government is keen to encourage new and affordable housing stock and encourage private investors who want residential property investment to obtain it through a commingled investment vehicle rather than on their own. REITs are able to borrow mortgage funds more tax efficiently than private investors as REITs would be perceived to have greater diversification of properties held and spread of tenant risk to voids and bad debts through non-payment of rent.
The advantages to private investors are:
(a) receive dividends from the underlying net rental stream;
(b) have no personal mortgage debt to manage;
(c) and have the same capital gains tax breaks as with direct investment.
There is also better liquidity for such investors as they would be able to dispose of all or part of the investment quickly and on a piecemeal breakup basis if it so suited exit and efficient capital gains tax planning.
There are other more technical changes afoot to enable pension funds and insurance company’s spin-off their commercial property portfolios into public ownership while at the same time retaining a stake for the benefit of their pension and policy holders.
We have been following proposed changes to REITs from the budget 2011 onwards. These are noted and explained in our earlier Posts on the subject:
- Real Estate Investment Trusts (UK REITs) (March 31 2011)
- Real Estate Investment Trusts (UK REITs) – Update on Proposed Changes (Nov 2 2011)