In its final regulations submitted to Parliament covering the new UK Real Estate Investment Trust (REIT), the Treasury relaxed a tax rule that had concerned the property industry and did not change other major aspects of the REIT legislation that was approved in the summer, as reported by Commercial Property News (CPN) in an article by European Correspondent Marshall Taylor published on their website. British property companies so desiring - industry analysts say the majority will - can convert to the REIT structure beginning 1st January 2007.
"There were no surprises in the the Treasury regulations, which was what we had predicted," Liz Peace, chief executive of the British Property Federation, told CPN. "The biggest feature for us was the Treasury allowing individual investors to hold more than 10% of a REIT's shares without incurring withholding tax."
The so-called "10% condition" included in the legislation enacted in July applied to both individual and corporate shareholders who owned more than 10% of a REIT's shares and would have denied them benefits from the REIT status for shares above 10%. The new Treasury regulations "only apply a tax penalty charge to a UK REIT where a dividend is paid to a company that owns more than 10% of the shares in a REIT," noted Gareth Lewis, director of finance and investment at the Federation.
Peace said that the Treasury is trying to preserve the UK's tax take without prompting European Union treaty claims by corporations, which are exempt from withholding tax. "That's why their ownership is limited to 10% without incurring a penalty," she added. Companies might deal with this situation in the derivatives market through the development of dividend strips, in which they would sell their dividend stream to investors.
