The property sector has won generous terms for the introduction of a new tax-efficient structure for companies in the sector.
Shares in property companies soared after it turned out that a furious lobbying operation by the industry had paid off. Compared to the draft proposals for bringing in "Real Estate Investment Trusts" (Reits), the details announced by the Treasury yesterday were much more attractive.
Large listed property companies, such as Land Securities, Slough Estates and Hammerson, are expected to be attracted to the scheme, which will start in January next year.
Stephen Herring, tax partner at accountants BDO Stoy Hayward, said: "I remain very optimistic that a substantial listed UK-Reit market will be created within 12 months ... hopefully in excess of £10bn."
Becoming a Reit means that a property company pays no tax. Almost all profits have to be paid out as dividends to shareholders, who are taxed on this income.
The property sector was fearful that the Treasury would levy a prohibitively high conversion charge for being allowed to become a Reit. In the event, the charge came it at 2 per cent of a company's gross assets. Charles Beer, head of real estate tax at accountants KPMG, said: "[this] will encourage more companies to convert to Reits".
Also welcomed was the amount of debt allowed to companies that take up the structure. The gearing level was raised from 30 to 40 per cent in the draft proposals, to 70 to 80 per cent.
Claire Hartnell of Grant Thornton, said that Reits would prove especially attractive for start-up property companies, which would have no conversion charge to pay.
The one area of concern where the Chancellor did not bow to property industry opinion was the stipulation that no single shareholder could own more than 10 per cent of a Reit. This would count against some listed companies, including Brixton Estates and Liberty.Reuse content