Property vehicles need more time

The Treasury completed its most recent consultation with property companies, funds, financial institutions and independent organisations in mid-2004. Following this process, it announced last week that further discussions with the industry are needed. The government plans to legislate what it has officially termed the UK-Reit in the 2006 Finance Bill, if, in the meantime, both the objectives of the property market and the government can be met.

UK-Reits are set to have a flexible structure with minimal constraints, including no legislation on management, property development or the types of property. An exemption from corporation tax may also apply to the Reits property letting business, allowing it to distribute income to investors, who are then taxed on the income from the investment.

Potential problems that might affect the introduction of Reits into this country include limited liquidity in the property sector and limited access to commercial property for smaller scale investors, according to the government report.

The Investment Management Association calls the announcement “disappointing”, as those that are interested in introducing property funds are now facing further delays. However, the Association of Investment Trust Companies says that it is encouraged by the fact that the government is taking its time with legislation and that it is committed to getting the structure of property investment funds right.

Generally seen as a positive move by many in the industry, last week’s Budget also saw an extension of the current Isa limit until 2010 to encourage new saving. The Isa limit of £7,000, with a maximum of £3,000 in cash, had previously been guaranteed until 2009.

Paul Feeney, head of European retail and Bancassurance at Gartmore, says that while the Isa extension was a good move, the government should still take measures to simplify the rules surrounding Isa wrappers: “There was a missed opportunity to simplify the rules for Isa wrappers in terms of transparency. For people who are investing, this is very important.”