Real estate investment trusts (REITs)

Produced by Tolley
  • (Updated for Autumn Budget 2021)

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

  • Real estate investment trusts (REITs)
  • Introduction to REITs
  • Expected changes to the REITs regime ― 1 April 2022
  • Conditions which must be met by the REIT
  • Entry and exit to the REIT regime
  • Group UK REITs
  • Qualifying groups
  • Conditions
  • Group tax treatment
  • Distributions
  • More...

Real estate investment trusts (REITs)

Introduction to REITs

A real estate investment trust (REIT) is in fact not a trust at all, it is a company which qualifies for special tax treatment under CTA 2010, Part 12.

REITs are similar in many ways to collective fund vehicles (such as unit trusts) in that they allow investors to pool their resources so as to provide them with opportunities which might not have been open to them as individuals. They are therefore a means of accessing the property market for those investors who do not necessarily have the requisite skills or funds to do so on their own.

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. The tax is instead transferred to the shareholders, which means, broadly, that the investors are put in the same tax position as if they had invested directly in the underlying properties held by the REIT. 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.

The rules for REITs can apply equally to single companies or groups of companies. There are a number of conditions that a company (or principal company of a group REIT) needs to satisfy in order to qualify as

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