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Forthcoming tax changes for REITs

  • United Kingdom
  • Financial services and markets regulation
  • Investment funds and asset management
  • Real estate finance
  • Tax planning and consultancy
  • Financial services


Draft legislation introducing several changes to the UK REITs regime intended to reduce administrative complexity and to facilitate institutional REITs to come into effect on 1 April 2022 was published on 20 July 2021.

The changes will:

  • Remove the requirement for the shares in an institutional REIT to be admitted to trading on a recognised stock exchange where specified categories of institutional investors hold at least 99% of the REIT’s ordinary share capital. Qualifying institutional investors include UK and overseas pension schemes, life companies and charities, sovereign wealth funds, UK REITs and equivalent non-UK REITs (tested by reference to the vehicle’s broad characteristics instead of the current equivalent legislative provisions test) and limited partnerships which are collective investment schemes in regulatory terms and satisfy a genuine diversity of ownership (“GDO”) test;
  • Remove the penalty charge currently triggered where property income distributions (“PIDs”) are paid to “holders of excessive rights” provided that they are entitled to receive them gross, such as UK companies including life companies. Holders of excessive rights are bodies corporate entitled to 10% or more of the share capital, dividends or voting rights in a REIT. (The charge was intended to limit the extent to which overseas companies could reduce their UK tax exposure by claiming relief under a double tax agreement tax but it was not possible to apply the provision only to overseas companies while the UK was a member of the European Union so it had to apply to UK ones too); and
  • Alter the “balance of business” test by:
    • Introducing a new, simplified 80% gateway test for group REITs; in those periods where the group accounts show property rental business and assets comprising 80% or more of the group’s totals, it will no longer be necessary to produce separate financial statements for each group company; and
    • Taking non-property rental profits that arise from a REIT complying with section 106 Town and Country Planning Act 1990 obligations out of the 75% property rental business requirement.

The government is continuing to look at extending the list of qualifying institutional investors and introducing a “close company” look-through, as many respondents to the recent consultation requested.

The HMRC policy paper, draft legislation and explanatory notes may be found on the GOV.UK webpage “Policy paper: Real Estate Investment Trusts: amendments”.

For more information on the changes, get in touch