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HMRC internal manual

Guidance on Real Estate Investment Trusts

Background: introduction

A Real Estate Investment Trust (REIT) is a vehicle that allows an investor to obtain broadly similar returns from their investment, as they would have, had they invested directly in property. The vehicle is a limited company (or a group of such companies), required to invest mainly in property and to pay out 90% of the profits from its property rental business as measured for tax purposes (see GREIT01020) as dividends to shareholders.

In the hands of the shareholder, dividends are generally taxable at their marginal rate as profits of a UK property rental business. Gains on disposal of shares in the REIT are chargeable to tax under the normal rules for disposing of shares.

The vehicle is exempt from UK tax on the income and gains of its property rental business. It does however pay CT at the highest marginal rate (currently 28%) on the profits and gains from any other activities.

Whether the vehicle is a single company or a group, it is referred to in the legislation as a Real Estate Investment Trust. In this guidance, they are referred to as UK-REITs or Group REITs.

The main rules for UK-REITs were introduced as Part 4 of FA 2006. Further rules were set out in regulations laid on 1 November 2006 (SI 2006/2864 to 2867) and those laid December 2007 (SI2007/3425; 2007/3536 and 2007/3540) and in June 2009 (SI2009/1482). The first date from which a company or group may become a Real Estate Investment Trust is 1 January 2007.