Groups will be unable to hold their own UK Reits within discretionary portfolios or fund of funds un...
Groups will be unable to hold their own UK Reits within discretionary portfolios or fund of funds under current Government proposals.
Deputy director-general of the AITC Ian Sayers believes the proposed restriction that no shareholder can take more than a 10% controlling interest in a UK Reit will mean groups will need to rule out any in-house investment to avoid a compliance nightmare.
"For global operations such as Fidelity for example, it will be nigh-on impossible to prove there is not one of the group's pension schemes somewhere in the world with a shareholding in the trust, as the compliance costs to ensure this would be huge," he said.
The implications of current rules are that it will be almost impossible to seed a Reit with capital. Sayers believed this was one factor that would force groups to continue using offshore property trusts over the proposed vehicles.
He argued that if the proposals remained unchanged, UK Reits will become as dramatic a failure as Housing Investment Trusts were in the 1990s.
He said: "The risk of a similar failure is even more likely today than in 1996, as there is now an established market of investment companies domiciled overseas but with a UK listing and the stigma surrounding offshore investing is beginning to abate."
Elsewhere in the Reits regulation, Sayers points out the Government's intention to rule split-capital UK Reits out of the question will contribute to an uncompetitive regime.
In a formal response to the Government's proposals, Sayers said the only UK Reits possible under current proposals would be conversions from existing property companies.
"While we feel existing listed property companies may convert into UK Reits, although this is far from certain, we do not believe new UK Reit launches will be a realistic proposition," he said
potential disadvantages of a UK reit compared to an offshore trust
Is subject to VAT on its management costs
Is subject to stamp duty on its share trades
Will be subject to double taxation if it wishes to gain exposure to property through another property company or fund
Is restricted on the forms of debt finance it can take on
Government's proposals will leave groups unable to hold UK Reits within discretionary portfolios or fund of funds
Groups will be forced to use offshore property trusts instead
Ruling out split-capital UK Reits would damage competition
Existing property company conversions will be only UK Reits possible
Despite improved risk appetite
FOS award limit increase
Relates to 136 million transaction reports
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