| Given the government’s U-turn on self-invested personal pensions (SIPPs), you could be forgiven for thinking the pre-Budget report was bad news for property investment. But Chancellor Gordon Brown made it clear that he was still keen for people to invest in property through their SIPPs – as long as they accessed it through indirect schemes. The theory behind this is that a fund with dozens or even hundreds of properties, some with a variety of tenants, will create more stability than owning just a single property.
Recent draft legislation also revealed that the Treasury is likely to allow UK savers to put real estate investment trusts (REITs) into investment schemes such as ISAs, pensions, personal equity plans (PEPs) and child trust funds (CTFs). The green light for these vehicles would offer tax-efficient exposure to property. However, we will have to wait for the legislation to be published in the Finance Act and enacted in July.
REITs included in these schemes would enjoy a double tax benefit, with the trust saving on corporation tax and the investment manager being able to reclaim the 22 per cent basic tax rate payable on the profit distribution to shareholders. This would give savers an alternative way of investing in property following the government’s move not to allow them to put residential property into their SIPP. |
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The tax benefits of REITs are expected to attract investors looking to benefit from the steady capital growth, good performance history and high income level of property investment. Instead of investing in property companies’ shares you could possibly buy shares in REITs, which, by contrast, do not pay corporation tax – as long as they distribute 95 per cent of their net taxable profits to investors. What this means is a much higher dividend return from most property groups than at present.
The new regime will be open to companies resident in the UK which are publicly listed on a recognised stock exchange. REITs could also provide an alternative to venture capital trusts, which invest in small unquoted and AIM companies, if the government clamps down on the tax benefits available on these. REITs are designed to give retail investors more access to property, mainly commercial, without the risks of direct ownership.
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Levels and bases of, and reliefs from, taxation are subject to change. |
