Real estate investment trusts (REITs)

By Tolley

The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Real estate investment trusts (REITs)
  • Introduction
  • Conditions which must be met by the REIT
  • Entry and exit to the REIT regime
  • Tax position of individual investors


A real estate investment trust (REIT) is in fact not a trust at all, it is a company that qualifies for special tax treatment under CTA 2010, Part 12 (subscription sensitive). REITs were introduced with effect from 1 January 2007.

The rules for REITs can apply equally for single companies or groups of companies.

HMRC views the introduction to the REITs legislation as permitting a purposive interpretation of the legislation in the event that any of the wording is not clear. Although the manual paragraph was written before FA 2006, s 103 was repealed and rewritten into CTA 2010, s 518 (subscription sensitive), it is still relevant to the current legislation.


The point of a REIT is that it can enjoy exemption from corporation tax on its property rental business, and also on any gains from disposals of properties that form part of that property business. Dividends from REITs have basic rate income tax withheld at source by the REIT and are taxable on the shareholder as if they were profits of a UK property business. However, if a shareholder decides to sell his shares in the REIT, these are taxed in accordance with the normal rules for share disposals, see the Shares guidance note. The shareholders’ tax position is discussed further at the end of this guidance note.

In order to manage the application of the corporation tax exemption, the legislation ring-fences the qualifying property income generating activity. This means that the ring-fenced income is exempt and all income outside of that ring-fence is taxable in the normal way.

At the time of writing, some parts of the HMRC manual have not been updated to reflect the rewrite of the legislation into CTA 2010, let alone any changes since then. However, most of the HMRC guidance is still correct and is useful.

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