UK Property Industry Urges Government To Proceed With REITS Despite Tax Loss Fears

by Robert Lee, Tax-News.com, London

25 May 2005

The pan-industry group, comprising the British Property Federation, the Investment Property Forum and the Royal Institution of Chartered Surveyors, has published a proposed industry response to the Government's Discussion Paper on UK Real Estate Investment Trusts introduced with Budget 2005.

The Discussion Paper gave a conditional commitment to the introduction of a UK REIT regime, but posed a number of questions of a technical tax nature that the Government said required answers before it could proceed with the next stage of REIT development and implementation. The most significant of these concerned the potential loss of tax revenue from overseas investors in UK property.

The Treasury asked the industry to assemble a group of tax and legal experts who, together with officials from both the Treasury and the Inland Revenue, have been considering these matters in a series of joint meetings.

The draft response published today - which includes the technical reports from the group of experts - concludes that the best way forward for the UK would be to proceed with introducing a straightforward tax exempt company as the basic structure for a UK REIT, even though this may lead to some initial tax loss. All of the other options identified would either lead to some reduction in the likely appeal of the REIT vehicle to potential 'convertees' and investors alike, or would involve significant complexities that could delay the early introduction of a UK vehicle - and, possibly, their commercial viability even then.

Liz Peace, Chief Executive of the BPF, speaking today on behalf of the pan-industry group, noted:

"We have a marvellous opportunity to introduce a collective investment structure for commercial property that would bring significant benefits to the economy, open up investment opportunities to the man in the street and, provided we do not delay, establish London as the REIT centre of Europe."

"We appreciate the concerns that the Government, and particularly the Inland Revenue, have regarding initial tax loss but we are confident that this will be relatively small, can be mitigated by a range of measures that our technical papers recommend and will, in any case, soon be overtaken by the enhanced investment activity that REITs will bring."

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