What are REITs?

The UK Real Estate Investment Trust ("REIT") regime was established in January 2007 following Government legislation. Property investment companies whose shares are traded on a recognised stock exchange and who meet certain conditions may elect to become a REIT. Companies within the REIT regime are not liable to pay corporation tax on their property rental income or capital gains on qualifying activities.

HM Treasury's objectives for REITs were to:

  • ensure returns from different forms of property investment were taxed in broadly the same way;
  • provide a liquid vehicle for investment in property;
  • provide smaller investors with access to returns from commercial property;
  • encourage a larger percentage of equity input into property investment;
  • encourage the release of assets from the balance sheet of property occupiers;
  • encourage greater professionalism in the rented housing sector;
  • encourage supply of residential stock by providing an exit route for house-builders.

LSR elected to join the UK REIT tax regime in May 2007 and is thereby exempted from corporation tax on its property rental income and gains on its property investments.

Further information on UK REIT regime may be found on the British Property Federation website.

REITs are required to distribute, as dividends, at least 90% of their property income. Where dividend payments are derived from qualifying sources they are referred to as Property Income Distributions ("PIDs"). REITs may also distribute dividends derived from non-qualifying sources (referred to as non-PIDs). To date LSR has paid dividends to its shareholders on both a PID and non-PID basis.

PIDs and non-PIDs are subject to differing tax treatments. PID dividends are assessable to tax in the hands of shareholders as property letting income. PIDs are therefore normally distributed after withholding basic rate Income Tax at the prevailing rate, which the Company pays to HMRC on behalf of the shareholder.

However, some shareholders may qualify to receive PIDs without deduction of withholding tax. Qualifying shareholders may include:

  • UK Pension Schemes
  • Managers of PEPs, ISAs and Child Trust Funds
  • UK Companies
  • Charities
  • Local Authorities

Qualifying shareholders may claim exemption from the deduction of withholding tax from PIDs by completing the form here and sending it to the Company's registrars.

Non-PID dividends are treated in the same way as dividends paid by non-REIT companies.

Published : Monday, October 23, 2017 7:01 AM

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