Real Estate Investment Trust or REIT – A REIT is a listed property company in a tax efficient structure:
- REITs must pay out 90% of their property income to shareholders every year.
- REITs must be primarily engaged in property investment, rather than in development or other non-property related activities.
- As REITs are all listed property companies, investments in them are generally very liquid.
- Dividends from REITs are treated as property income to the investor, and are taxed accordingly. These dividends are subject to a withholding tax at basic rate income tax, except for certain classes of investors who can register to receive gross rather than net payments. These include charities, UK companies, and pension funds.
- REIT shares can be held in ISAs and Child Trust Funds (CTFs), and the managers of these can receive gross distributions, making these highly tax efficient.
Conversion to REIT status can carry substantial tax benefits. REITs are property companies that manage a portfolio of real estate to earn profits for shareholders, and their special tax status means that they pay no corporation tax on the profits of their rental business, but they need to comply with a number of conditions set out in tax law.