British Land calls Reits unworkable

British Land yesterday became the latest property industry voice to criticise the Government's proposals to introduce a tax-efficient vehicle for the sector, saying it was "unworkable".

The Treasury has published draft legislation to introduce Real Estate Investment Trusts (Reits), with its final plans expected to be announced in the Budget in March.

British Land, one of Britain's biggest property companies, said that the restrictions on the level of gearing allowed in the draft Reit regime meant that it could not convert to the new structure. Under the draft plan, profits must cover interest payments two-and-a-half times.

Stephen Hester, the chief executive, said: "The current draft is not workable. But we are encouraged that the Government is listening to the industry.... I don't believe that the Government would want to bring in something that is not successful."

He also said that the proposed rule that any single shareholder be limited to a 10 per cent interest in a Reit would make flotations into the sector difficult.

After years of lobbying for Reits to be allowed in the UK, the property industry has reacted largely negatively to the form in which the Government so far plans to introduce them in this country. Reits pay no corporation or capital gains tax but they must pay out most of their profits as dividends to shareholders - who will be taxed on the dividend payouts. The Treasury is currently consulting on its draft Reit legislation.

There will be a one-off tax liability payable to convert to Reit status but the Treasury has given no indication how punitive this will be.

Last month, another major property company, Liberty International, described the conversion charge as "ridiculous".

David Fischel, the chief executive of Liberty, said: "I don't believe in the principle of paying money upfront to the Government."

The British Property Federation said that the Government should also make "UpReit" provisions, providing tax relief to businesses that want to transfer their property into a Reit in exchange for shares in that Reit.

Gareth Lewis, the director of finance and investment at the British Property Federation, said it was the implementation of the "UpReit" provisions in the US in the early 1990s that saw the scheme take off.

"If nothing is changed [in the UK], there would be very limited take up of Reits," Mr Lewis said.

The industry is also concerned that the Treasury proposals require Reits to hold on to development properties for three years, rather than being allowed to sell up straight after building.