9 December 2022
If you are covering the reforms to the tax rules governing Real Estate Investment Trusts announced as part of the Chancellor’s Edinburgh Reforms, please see comments from Oli Creasey, head of property research at Quilter Cheviot:
“The amendment of the REIT rules will simplify transactions by opening some of the loopholes already in use across the industry rather than trying to close them.
“For example, there are several companies listed on the relatively new property stock exchange IPSX which are ‘single property’ REITs. In the past they have gotten around current legislation by claiming that because the assets have multiple tenants, they can be considered multiple, separate properties. Allowing large, single buildings to be treated in this way ends the uncertainty over whether this approach is correct and is a boost to property companies looking to list vehicles of this nature.
“Our main concern would be that properties valued close to the £20m threshold would need to be carefully considered – a drop in value could cause the vehicle to fall outside the regime, with the tax implications that would come as a consequence.
“With regards to recent development rules, this is an issue that UK REITs have been skirting around for some time. It has become almost common practice for a REIT to sell a development property shortly before practical completion to avoid this tax burden, with Landsec’s sale of 21 Moorfields (Deutsche Bank’s new London HQ) in September 2022 being a notable recent example. Again, the practice of selling newly developed properties is likely to continue, but this relaxing of the rules will enable the vendors to act with a little more freedom, knowing that there is no deadline before which a sale ought to be completed.
“In all, both reforms are likely to be marginally helpful to existing property owners.”
