Article by Ros Rowe, tax partner, and Adrian Rudd, director, PricewaterhouseCoopers LLP. This article appeared in the May 2006 issue of Tax Adviser. Draft legislation on a tax-favoured investment vehicle, the UK Real Estate Investment Trust (REIT), published with the 2005 Pre-Budget Report, attracted widespread criticism. Within the property industry it was seen as being overly complex and commerically restrictive. It was revised and updated along with the addition of the group rules in January 2006, but was still perceived as being relatively unattractive.
The property industry urged the government to, in particular, reconsider its proposed gearing restrictions and limitations on shareholdings to 10% or less. The government also reserved its position on the nature and rate of a conversion charge, which it insisted was necessary to make the proposals tax-neutral.
The Finance Bill of 7 April 2006, putting into specifics the Budget announcements of 22 March, heralded welcome revisions to the regime for shareholdings, which no longer penalise innocent shareholders where an investor takes 10% or more of the shares. Relaxed restrictions on gearing (1.25 times interest cover) and the reduced required distribution from 95% to 90% are also great news. The impact of the conversion charge at 2% of gross assets is not extreme and may be softened for some by the four years' spreading provisions.
May PBRP>/P~~
