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How to qualify as a REIT


There are a number of qualifying conditions that a company needs to meet in order to become a UK-REIT.  These qualifying conditions, as determined by HMRC, fall into 3 categories; company conditions, property rental business conditions and balance of business conditions. In particular, a potential UK-REIT has to carry out a property rental business which can be a UK property investment business or an overseas property investment business.  At least 75% of the group’s profits must derive from that property rental business and at least 75% of the group’s gross assets must comprise assets or cash involved in the property rental business. Further details of the conditions required to be met to enter, and remain within, the UK-REIT regime can be found on the HMRC website at the link below:

HMRC Guidance on REITs

Changes to the UK REIT regime

In the 2011 Budget, the UK Government announced a consultation on significant changes to the UK-REIT regime, with the overall aims of reducing barriers to entry and encouraging investment in new and existing UK-REITs; as well as promoting good business practice for existing and future UK-REITs.  In particular, it is  hoped that as a result of the reforms  the number of UK-REITs will increase as will the exposure of UK-REITs to the residential property market and capital providers.

HM Treasury have now introduced amendments to the REIT regime which came into effect on 17 July 2012, when the Finance Bill 2012 received Royal assent.

The key changes to the regime which reduce barriers to entry and investment are:

  • Abolition of the conversion charge for companies joining the UK-REIT regime. Companies will no longer have to a pay a 2 per cent charge when converting to a REIT.
  • Relaxation of the requirement for a UK-REIT to be “listed on a recognised stock exchange” to enable UK-REITs to be “traded on a recognised exchange”. This will allow UK-REITs to join AIM, thereby encouraging entry into the UK-REIT regime particularly for start-up property investment companies.
  • Introduction of a fixed grace period of 3 years for new UK-REITs to meet the non close company requirement.  This will help start up UK-REITs to build sufficient reputation to attract shareholders.
  • Relaxation of the close company condition for institutional investors.  This will enable one or more institutional investors to either hold a significant investment in a UK-REIT or to set up a UK-REIT.

Finance Act 2012

 




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