Tax EfficientTaxation and UK REITs

Taxation

Tax Considerations for Company

Noble Tree intends to become a Real Estate Investment Trust (REIT) and will have Tax obligation associated with REIT status however in the period leading up to becoming a REIT the company will be subject to standard UK property Tax law.

As a REIT, Noble Tree will be required to distribute 90 per cent of tax-exempt profits from its property rental business as PID. For tax purposes, HMRC requires qualifying property rental profits to be adjusted to reflect capital allowances and other items. The tax qualifying profits may not be the same as the reported accounting profits.

UK Tax Considerations for Shareholders

This summary of tax consequences for shareholders is intended to provide only a general outline of the subjects covered. It should neither be regarded as comprehensive nor sufficient for making decisions, nor should it be used in place of professional tax advice. Noble Tree accepts no responsibility for any loss arising from any action taken or not taken by any person using this material.

Following conversion to REIT status, dividend payments may comprise a mixture of both Property Income Distribution (PID) and non-PID dividends. The amount of the PID and non-PID elements of the dividend will be shown on the associated tax vouchers. Shareholders should note that the tax treatment of PID and non-PID dividends differs.

Non-PID dividend payments

The non-PID element of dividends will be treated in exactly the same way as Noble Tree dividends prior to becoming a REIT and in the same way as dividends received from non- REIT companies.

PID dividend payments

PIDs are taxable as property letting income in the hands of shareholders who pay tax, but will be treated separately from any other property letting business which shareholders may carry on. PID dividend payments will generally be paid out after deduction of withholding tax at the basic rate (at 20% for 2014/15 onwards). However, certain classes of shareholder may be able to claim exemption from deduction of withholding tax. Examples of such classes are:

  • UK Companies
  • Charities
  • Local Authorities
  • UK Pension Schemes
  • Managers of PEPs, ISAs and Child Trust Funds

More Information on Taxation of Shareholders


UK Real Estate Investment Trusts

Noble Tree’s objective is to become a REIT and to date, according to the British Property Federation there are only circa 30 UK REITs listed in the UK1 with market capitalisation of circa £33 billion.2 The main reason why REITs are so attractive is because there is tax relief on rental income and gains from property investment. Other positive features include REITs being open to non-resident investors. As REITs are listed on exchanges, they are considered transparent and liquid investments which are positive characteristics for all types of investors. REITs combine the transparency of equities with the solidity of property investments.3 Noble Tree management believes this is a winning combination.

Institutions such as banks find REITs attractive as they reduce exposure on the banks’ property portfolio by floating property on the exchanges. Others such as social housing providers have a new channel to raise capital by putting their portfolio into a REIT and reinvesting the monies raised in their housing stock. The list of institutions that benefit greatly from this structure continues to include property companies, house builders, offshore properties and institutional investors. It should also be noted that REITs can also be found in the investment portfolios of child trust funds and many ISAs.4

More Information on UK REITs