Investment Types - REITs
Reits
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Reits

Real Estate Investment Trusts (Reits) were introduced in the UK at the start of 2007 and give investors a tax-efficient way of investing in the commercial property market.

Several property companies have chosen to convert into Reits but before they can do so they must meet certain criteria, such as being listed on a recognised stock exchange and being solely resident in the UK for tax purposes.

Customers can invest in a Reit directly by buying its shares or indirectly through a collective investment scheme – this is where you buy units in a scheme that invests in Reits.

The major advantage to investing in Reits is that they have tax benefits.

Normally anyone buying shares in a large property company would be hit by double taxation. Firstly, the company has to pay corporation and capital gains tax on profits made from property investment. But on top of this, the shareholder is liable for income tax on dividends and capital gains tax.

However, if the company becomes a Reit and distributes 90% of its profits to shareholders as dividends, it won't have to pay corporation or capital gains tax.

This means that dividends are likely to grow for investors, making the prospect of investing in Reits very attractive. What's more, Reits can be held in an Isa, providing further tax benefits as investors won't have to pay tax on their dividends.

The main disadvantage to this type of investment is because Reits are quoted on the stock markets, they are more volatile than investing directly into property or unit trust funds.

The recent performance has also been poorer than for direct property and shares in Reits have continued to trade at a discount to Net Asset Value (NAV) which is the value of the assets held within a Reit.

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