The government has announced changes to the real estate investment trust (Reit) regime, designed to remove barriers to entry and facilitate increased investment.
It is seeking to increase investment in the Reit sector in the hope that it will stimulate the UK construction sector, although it has said it predicts “no significant macroeconomic impacts”.
The proposed changes are in response to the Investment in the UK Private Rented Sector consultation paper from September 2010 and include changes to the listing requirements, distribution requirements and conversion charges.
Reits are currently required to be listed on a recognised stock exchange. The government has proposed this is relaxed to instead include trading platforms and their foreign equivalents.
The distribution requirement, that 90% of profits from property rentals are distributed to investors, will also be amended to “ensure that tax is charged at the right time”.
Previously, a company that joined the Reit regime would have been required to pay a conversion charge equivalent to 2% of the assets from the rental property business side of operations.
The new proposals would abolish this 2% entry charge altogher.
Currently, 75% of the total profits or assets of a Reit have to be of its property rental business. Under the new proposals, cash could be added to the assets of the property rental business in order to make up this balance of business.
Under certain circumstances, Reits will also be allowed to operate as a closed-end company.
Additionally, financing costs will only comprise of interest, something the government has said will “better align the regime conditions with a Reits commercial needs.”
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