Reits inquiry lifts property hopes

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The Treasury has appointed an official to investigate the introduction of Real Estate Investment Trusts, in a possible precursor to full-scale government consultation on the move.

The official is understood to be "fact-finding" on the trusts, whose structure offers major tax advantages. If the idea is attractive, the Treasury is expected to launch a formal consultation next year and the measure could be included in the April 2005 Budget.

Reits are available to property companies in the US and on the Continent. Treasury mandarins visited the Netherlands over the summer and visits to the US are planned.

The structure would enable property companies to avoid double taxation - paid on profits and by investors on dividends. With Reits, tax would only be payable on dividends.

The Treasury has resisted the idea in the past, because it feared a loss of tax revenues. However, the industry has told officials that the UK listed sector is disappearing and that much real estate is now held offshore, for tax reasons.

Property leaders say that, with a higher tax rate on dividends, the introduction of Reits would maintain or even increase the tax take.

The industry also says Reits would benefit equity investment in property. An exit tax for companies converting to a Reit structure would benefit state coffers straight away.

The UK's unfavourable tax regime is blamed for the large discounts property shares typically trade at, compared with the net value of a company's assets.