Companies with large property portfolios will have the opportunity to convert into REITs from January 1, 2007. One of the main advantage of REITs is that they pay out most of their income in the form of dividends but do not pay income tax.

The chief change to the new regime announced by Brown was that the rules for new companies wishing to become REITs will be relaxed. At the time that a parent company serves a notice to become a REIT, it will only have to affirm its reasonable belief that it will be listed on a recognised stock exchange at the time that it will join the regime. Under the previous rules, a company would have to wait to list before issuing a notice that it intends to join the REIT regime.

In addition, HM Revenue & Customs is now permitting new REITs to meet certain tests at the end of the year rather than from the day of listing.

These tests mean that a REIT has to earn 75% of income from renting property and 75% of its assets must generate rent.

However, a 2% entry charge is then payable on the market value of all the qualifying assets held at the year end (less qualifying assets held at the beginning of the accounting period).

According to Rosalind Rowe, real estate tax partner, PricewaterhouseCoopers LLP, these changes will go a long way towards helping the UK REIT market grow in its early stages.

“The REIT market has to hit the ground running and grown. While ten listed groups have said that they will convert, the market needs new joiners to maintain growth. Relaxation in the rules will give time for property companies to raise funds and then buy investment properties rather than needing to meet all tests on the first day of trading," she said.

“Property rich companies seeking new sources of finance will now have a wider market including existing listed companies and new entrants - who will clearly need a property pipeline," Rowe added.

While other accountants have broadly welcomed the changes, some expressed reservations over the additional 2% surcharge on companies when converting to a REIT.

"This is the first step of many required to achieve the growing REITs market that investors, the property industry and government want. The changes announced today should help smooth the way for new entrants to the REITs market," noted Phil Nicklin, Real Estate Tax Partner at Deloitte

“However, while the relaxation for newly-formed companies is welcome, companies will still have to pay a 2% conversion charge on top of the 4% stamp duty they've just paid on acquiring their portfolios and this may prove too high for some property companies," he cautioned.

Charles Beer, head of real estate tax at KPMG, also worried that the conversion charge may hinder growth in the REIT market.

"It is unclear how attractive this will be to new REITs given they will have paid stamp duty on acquiring the property, and will not get any immediate benefit from the capital gains exemption," he observed.

“However, it remains to be seen exactly what is in the fine detail," Beer concluded.