'Reit' break for quoted property groups

Chancellor Gordon Brown is considering radical plans to grant quoted British property companies special tax status in an effort to stop millions of pounds being lost from the sector.

Mr Brown has set up a Treasury unit to examine the implications of so-called Real Estate Investment Trusts (Reits), which hail from the US. A senior Treasury official went on a fact-finding mission to New York last month to study how Reits work. Informal meetings have also been held with the British Property Federation (BPF) and investment banks, including Goldman Sachs.

Under the idea, quoted property companies would be allowed to convert to a Reit, exempting them from corporation tax and capital gains tax. However, companies converting would be subject to a one-off tax, payable over a number of years.

The quoted property sector has traded at a significant discount to the net value of the companies' assets in recent years. This has been due in part to the high level of taxes in the sector. As a result, a number of property companies have gone private, notably MEPC in August 2000. Chelsfield is now working on plans for a management-led buyout.

Goldman Sachs estimates that the total equity value of the quoted property companies has declined 25 per cent since 1998. The investment bank believes that the Treasury's annual tax take from the sector will decline to £108m in 10 years. It estimates that under a Reit structure this figure would grow to £153m.

Liz Peace, the chief executive of the BPF, said: "There is a genuine Treasury interest in exploring what Reits could do for the UK economy."