Assetz ® Property Investment Fund Management

Assetz ® REITs - Real Estate Investment Trusts

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Assetz ® OEICs, OEIC, Unit Trusts, Funds, Syndicates and Joint VenturesIn the March 2006 Budget, Gordon Brown finally revealed that real estate investment trusts (REITs - a special tax-exempt property investment vehicle) would be introduced in the UK in January 2007 and the details that were released buoyed the industry.

After the disappointing U-turn on self-invested personal pensions (Sipps) in the chancellor's pre-Budget speech, news of UK-REITs was welcomed by almost everybody in the property investment business, with many celebrating the increased access it offered to the market.

Feasibly, REITs can contain a number of properties from a wide variety of sectors, while the key advantage is that taxes are paid by the investor rather than the fund, eliminating possible double taxation.

One of the most notable restrictions is that at least 90 per cent of a REIT's net profits must be distributed to shareholders each year. In addition to this, its shares must be listed on a recognised UK stock exchange (not AIM or OFEX). Unlisted REITs are thought to be introduced in one or two years time.

The legislation also specifies that no single investor can directly or indirectly control ten per cent or more of the share capital or voting rights in a REIT.

At least 75 per cent of the trust's assets must be in property investment, while 75 per cent of its income must be in property rentals. Gearing is also likely to be restricted so that may limit the scope for growth funds. However it is still likely that Assetz will create a number of REITs that focus on different income generating property classes, both here and overseas. Any existing and suitable Unit Trusts could be rolled into these new REITs if it is thought prudent.

There are also limitations on the amount a REIT can borrow, in that taxable profits have to be 1.25 times higher than interest on loans.

REITs will be very useful for investors seeking income directly without a company taxation structure causing them to lose some irrecoverable tax before the income reaches them for gross income purposes. REITs have been very successful in other countries although, in most cases, they have taken many years to become well-established.

One of the most contentious issues throughout the debate on REITs has been the conversion charge, as this has been seen as a key factor in deciding how many companies will take advantage of the policy.

While many had worried that the conversion charge would be levied as a percentage of unrealised capital gains, the government thankfully decided that companies wishing to adopt REIT status will, instead, have to pay a charge of only two per cent of the market value of the investments.

Following the chancellor's Budget announcement, reaction from the property sector was enthusiastic.

The Royal Institution of Chartered Surveyors (RICS), for instance, said that the investment vehicles will help the government in its attempt to improve "the efficiency of both the commercial and residential property investment markets".

RICS went on to say that REITs will open up property investment to more individuals which, it argues, can only benefit the health of the market.

In its concluding remarks, RICS revealed that it was confident of REITs facilitating the development of "a high quality residential lettings market", whilst boosting house building over the medium and long-term.

The UK Real Estate Investment Trust or "REIT" first came about as part of the Budget in 2004 when HM Treasury proposed, by way of a consultation paper, "Promoting more flexible investment in property: a consultation". At this stage, the REIT was labelled a Property Investment Fund or "PIF". The Government set four key objectives for reform:

  • Improving the quality and quantity of finance for investment in both commercial and residential property;
  • Expanding access to a wider range of saving products on a stable and well-regulated basis;
  • Ensuring the payment of a fair level of tax by the property sector, to protect all tax payers;
  • Supporting structural change in property markets by reducing costs and improving flexibility and quality for tenants.

We will keep investors advised on progress on the legislation relating to REITs and our intentions regarding them. Presently, Assetz is not planning to release any REITs for a number of reasons and prefers to operate limited partnership and property unit trust structures due to their lower costs of operation permitting a wider range of tactical funds. Assetz will review the situation and make further announcements in due course.

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Readers of the contents of this web site should note that it is provided for general information purposes only and is not intended to form the basis of a decision to invest. Any investment decision must be based on terms of business and a prospectus which may be supplied by the fund manager, to appropriate categories of recipient only. Unregulated Property Unit Trusts are unregulated collective investment schemes for the purposes of the Financial Services and Markets Act 2000 and consequently there are restrictions on their marketing and distribution and acceptance of investors. Further information is available to Authorised Persons and appropriately certified sophisticated investors upon application to the fund manager via enquiry forms on this site. This is not an offer to subscribe to any investments.
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