June Budget – UK REITS
Changes are to be made to the UK Real Estate Investment Trusts (REITs) legislation. This will be modified to allow UK REITs to issue stock dividends in lieu of cash dividends in order to meet the requirement to distribute 90% of the profits from the property rental business of the REIT.
A UK REIT is a qualifying group or company with a property rental business that elects to join the UK REITs regime. The principal benefit of joining the regime is that the profits and gains arising from the property rental business are exempt from corporation tax. This means that investors in the REIT do not suffer double taxation of profits and gains. This is what normally happens as companies pay corporation tax on their profits and then further tax is payable on the investors’ returns from their shares in the company.
Shareholders in a REIT will continue to be taxed as if they had received rent. This gives shareholders a return similar to that which would have been achieved if they invested in property directly.
The existing REITs legislation will be amended in the next Finance Bill to be introduced as soon as possible after the summer recess. The measure will have effect for property income distributions made on or after the date of Royal Assent.