Background Note
22.REITs are a tax advantaged vehicle introduced to encourage investment in the property sector. REITs are exempted from corporation tax on the profits and gains arising from their property rental business. REITs have to distribute 90 per cent of the profits of the property rental business to shareholders in whose hands this income is treated as income from property. In this way taxation of income from property is moved from the corporate level to the investor level.
23.The REIT regime was introduced in Finance Act 2006. The legislation was subsequently rewritten to CTA 2010. To date, over 20 REITs have been created with particular focus on commercial property investment.
24.The Government indicated in its response to the 2010 Private Rental Sector consultation that it would look further at the barriers to entry to the REIT regime with the view to facilitating, in the longer term, the establishment of residential REITs. Subsequent further consultation with interested parties suggested that the best way to support the REITs industry in general (and the development of residential REITs in particular) was among other things, to reduce barriers to entry for new REITs and to ensure that the regime does not work so as to inhibit good business practice.
