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Criteria relaxed for Reits

by Tony Clements

With launch less than one month away, the legislation on Reits has again been subject to review but, unlike many other elements of the pre-Budget report, this will be broadly welcomed.

HM Revenue and Customs has relaxed the criteria for a newly established company to meet before giving notice that they want to join the regime. The firm no longer needs to be listed on a recognised stock exchange on the day they give notice of intent to join the regime but must be listed when their application goes live. These changes will allow a chunk of the start-up costs to be passed on to investors as they subscribe rather than being borne initially by the “baby” Reit itself.

This will no doubt encourage those of a more entrepreneurial bent to consider Reits as their preferred way of managing the part of their property portfolios and a route to raising new capital and investment, particularly through pension funds.

It is still likely to be the main way the pension investor will gain exposure to the residential market. Pension investors must be careful that their holding does not exceed 10 per cent of the Reit – in and outside the pension (the associated person’s test applies) or they face falling foul of a 70 per cent penalty.

Exempting overseas exchange traded funds from stamp duty reserve tax in line with overseas shares is a sensible move and can only serve to increase the popularity of this cheap and efficient way to gaining exposure to many markets, particularly as they become more innovative in the markets they track.

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