Efforts by UK government to ensure there are no tax holes could make reits an unattractive investment vehicle
The head of the UK's Association of Investment Turst Companies (AITC) believes government tax plans will hinder launch of property vehicles.
Real Estate Investment Trusts (Reits) could prove too complicated and expensive to be attractive if the Government has its way, according to Daniel Godfrey, director general of the AITC.
Godfrey said he is not optimistic that Reits will be implemented quickly, with the project already lasting more than two years in the UK.
He believes the Government's determination to avoid any tax leakage through the vehicles, particularly from offshore investors, could undermine their viability.
In his 2005 Budget, the Chancellor Gordon Brown implied definite plans for Reits would be announced in the 2006 Finance Act, but Godfrey said that even if this timeframe is met, there will still be serious problems with the proposition.
The AITC is part of a working group seeking to iron out issues relating to Reits.
"It has been very dispiriting and we basically just want to see the vehicle come to pass in a simple and transparent form," he added. Godfrey believes the Government is likely to apply some tax to the vehicles at company level, which he believes would remove one of the key advantages of the proposition.
Meanwhile, the AITC is also pressing ahead with other legislative action, such as the removal of VAT from onshore investment trusts. The legal action to have it removed has now been referred to the European Courts.
Godfrey said he estimates the cost of this action will be less than £250,000 if the case is won but, if it is lost, costs would be under £500,000. This does not include the salary costs of the AITC staff working on the case.
He added that a key priority for the association is attracting more membership from offshore investment trusts, which he said is a growing share of the investment trust market.
Godfrey has established a committee to look at the situation. "We have not carried out very extensive marketing in terms of offshore trusts in the past five or six years. The new trusts that have been launched have not been joining the AITC," he said.
"The perception is that it is of no great value for offshore trusts to be members. The offshore sector has been growing as a proportion of the market, first through split caps and then through fund of hedge funds and property, and is a clear priority for us."
Godfrey said the committee will have a remit to make representations to the AITC about whether the membership costs for offshore trusts should be cut, but added that would be a hard case to sell to him.
Another key area that Godfrey has sought to address is the possibility of a savings wrapper, run by the AITC, to facilitate the distribution of trusts.
He said plans for such an initiative are still in the early stages but, were it to take shape, it would need to be white-labelled and would therefore require the support of an administration house.
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