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UK Government to open door to unlisted Real Estate Investment Trusts

29 September 2021

The UK government has announced changes to its Real Estate Investment Trusts (REITs) framework that paves the way for greater flexibility and new opportunities for institutional investors.

The REITs regime, which was first introduced in the UK back 2007, has seen various developments in recent years that have made it an attractive and increasingly accessible regime to property investors, not least as a means of providing tax efficient structures.

HM Treasury’s proposed legislation means that as of 1 April 2022, REITs will no longer need to be listed provided that one or more “institutional investors” hold all (or at least 99%) of the REIT’s ordinary share capital.

It means that UK REITs will be seen as a useful UK corporate conduit by providing a joint venture or single institutional investor vehicle – although, of note, when the REIT shares are being held for a limited partnership, the partnership needs to meet a “genuine diversity of ownership” (GDO) condition. The changes will also open the prospects of an efficient tax and regulatory exit of an existing real estate investment platform into a listed REIT. 

Making the UK an attractive property investment hub

In addition, the new REIT legislation proposals will contain other flexibilities that will make the UK even more attractive as a property investment hub:

  • REITs will no longer face a tax charge when they pay a property income distribution (PID) to UK corporates who hold at least a 10% or more interest in the REIT.
  • A new “gateway test” in the form of a simplified balance of business test is set to be introduced so that a REIT would only have to complete a single statement for the group’s property rental business and a single statement for the group’s residual business if the statements show group property rental business profits or assets to be 80% or more of the total group profits or assets. In addition, non-rental profits arising from certain planning obligations related activities can be disregarded for the balance of business test.
  • UK REITs will be a “relevant qualifying investor” for the purposes of the Qualifying Asset Holding Companies (“QAHCs”) regime (link), which is also marked for changes under the proposed legislation.

If you would like to find out more about REITs or want to know more about the opportunities that the new legislation can offer, please contact us here.

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