Government to set up new workstream for REITs revamp

The UK government is set to launch a new workstream looking at more changes to the real estate investment trust market, after publishing a summary of industry views on reforming the country’s fund regime. The government review, announced in the 2020 Budget, focused on how to make the UK “a more attractive location to set up, manage and administer funds”. It received 79 responses from asset management firms, management consultants, institutional investors, accountancy bodies, law firms and trade bodies. Reforming REIT rules was among the most cited top priorities, according to the summary of responses published last week. “Respondents called for more flexibility in the regime rules and in the types of assets a REIT can hold, to make it easier for UK REITs to be launched on behalf of major overseas and domestic investors,” the summary said. “Given the strong stakeholder support for further reform to the REIT regime, the government will establish a new workstream as part of the UK funds regime review to further evaluate the options,” the paper added. “This workstream will determine which of the specific proposals in the call for input will be taken forward and set out a timetable, as well as considering any wider suggestions.” Opening the call for input, the government had pointed to “unnecessary barriers and complexity within the rules for REITs”, and has since made changes in the Finance Bill, including removing the requirement for all REIT shares to be admitted to trading on a recognised stock exchange; changing the definition of an overseas equivalent of a UK REIT; removing the “holders of excessive rights” charge; and amending the rules requiring at least 75% of a REIT’s profits and assets to relate to property rental business. But the summary of responses included several other changes that respondents said could improve the regime. These included removing the requirement for a company to hold at least three properties, as well as amending the rules around the taxation of UK REITs that hold overseas property. “Respondents welcomed the suggestion of removing the three-property requirement and thought this had the potential to make UK REITs more attractive to investors owning large single assets in the UK,” the summary said. “It was suggested that the rule requiring that no single property represents more than 40% of the total value of the properties in the property rental business should also be removed. Respondents noted that the application of the rule in practice was not always coherent. For example, a large warehouse leased to one tenant could be treated as a single property, whereas different floors of the same building leased to the same tenant could count as three properties, regardless of overall property value.” Some respondents suggested broadening the definition of qualifying assets for the REIT regime, including extending it to property backed debt, which would allow the creation of UK mortgage REITs, as well as operational income from infrastructure assets; and renewable energy assets and the necessary infrastructure as the country transitions to net zero. In its industry-wide response to the feedback, the government has now proposed making the taxation of funds “simpler and more efficient”, including in relation to REITs; expanding the range of investment products available in the UK; and exploring new opportunities to support the wider funds environment, including promoting the regime abroad. To send feedback, e-mail tim.burke@eg.co.uk or tweet @_tim_burke or @EGPropertyNews Photo: Frank Augstein/AP/Shutterstock