Given the government’s U-turn on self-invested personal pensions (SIPPs),
you could be forgiven for thinking the pre-Budget report was bad news
for property investment.
But Chancellor Gordon Brown made it clear that he was still keen
for people to invest in property through their SIPPs – as long as
they accessed it through indirect schemes. The theory behind this is
that a fund with dozens or even hundreds of properties, some with a
variety of tenants, will create more stability than owning just a
single property.
Recent draft legislation also revealed that the Treasury is
likely to allow UK savers to put real estate investment trusts (REITs)
into investment schemes such as ISAs, pensions, personal equity
plans (PEPs) and child trust funds (CTFs). The green light for these
vehicles would offer tax-efficient exposure to property. However, we
will have to wait for the legislation to be published in the Finance
Act and enacted in July.
REITs included in these schemes would enjoy a double tax benefit,
with the trust saving on corporation tax and the investment manager
being able to reclaim the 22 per cent basic tax rate payable on the
profit distribution to shareholders. This would give savers an
alternative way of investing in property following the government’s
move not to allow them to put residential property into their SIPP. |
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The tax benefits of REITs are expected to attract investors looking to
benefit from the steady capital growth, good performance history and
high income level of property investment.
Instead of investing in property companies’ shares you could
possibly buy shares in REITs, which, by contrast, do not pay
corporation tax – as long as they distribute 95 per cent of their
net taxable profits to investors. What this means is a much higher
dividend return from most property groups than at present.
The new regime will be open to companies resident in the UK which
are publicly listed on a recognised stock exchange.
REITs could also provide an alternative to venture capital trusts,
which invest in small unquoted and AIM companies, if the government
clamps down on the tax benefits available on these. REITs are designed
to give retail investors more access to property, mainly commercial,
without the risks of direct ownership.
Please e-mail or contact us for further information.
Levels and bases of, and reliefs from, taxation are
subject to change. |
