The Association of Investment Trust Companies (Aitc) has warned tax is the single most important area that remains to be resolved before a UK style Real Estate Investment Trust (Reit) structure can be launched.
The Aitc, responding to the government’s consultation exercise on the subject of Reits, says unless the government takes a flexible approach to tax, UK Reits, or Property Investment Funds (Pifs) as they will be known in the UK, will have little chance of being successfully launched within the government's desired timeframe, thought to be the beginning of 2007.
The Association says Pifs could fill a significant gap in the market for both institutional and private investors, adding they could be excellent for retired investors who do not wish to enter the buy-to-let market, or undertake other property transactions but do require an income which they could secure through such a fund.
But it says the key outstanding issue is still tax, and that while the government may be concerned about any perceived tax loss, due to different tax treatments between different types of investor, it needs to be flexible about how tax neutrality can be achieved.
Daniel Godfrey, director general of the Aitc, says unless the government is flexible in its approach to tax neutrality UK-Reits are likely to fail in the same way Housing Investment Trusts did, where not even a single launch got off the ground. "There is no point in creating a structure that will not be attractive to investors or product providers – flexibility over how tax neutrality is achieved will be essential," he says
“If flexibly approached, the UK-Reit could be an excellent means of private investors, particularly those in retirement, to generate a regular higher level of income than can be obtained elsewhere. A flourishing Reit market could generate additional tax revenues, and this would stem the tide of such fund being launched offshore,” Godfrey adds.
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