Is This The REIT Investment?

Q. I have heard of a new type of investment involving property called REITS. What are these?

A. REITs are a new type of investment in the UK, and are based on a similar type of investment used in the US for many years.

REIT stands for Real Estate Investment Trust, which pools investors money and invests in various types of propertysuch as shopping centres, offices, industrial units, cinemas and even residential property.

The Chancellor announced his intention to allow these types of investment in his budget in 2004, with the intention of enhancing the liquidity of property investment and attracting more retail investors and encourage growth in the private rented sector.

A main benefit from the investors point of view is that it gives them access to property, without having to physically buy into bricks and mortar.

If the REIT fund fulfils certain criteria, it wil qualify for favourable tax treatment, resulting in an exemption from Corporation Tax on both profits and Capital Gains.

For the individual investor the trust witholds basic rate tax on the distribution of income, and you would pay any further tax in the normal way (including Capital Gains Tax).

REITs are eligible to be held in Individual Savings Accounts as well as Self Invested Pensions. This would of course make the investment very tax efficient as there would then be no income or capital gains tax applicable.

So, should you invest in these new schemes? The answer, as usual, is that if they are held as part of an overall risk assessed portfolio, then they could well be a valuable choice.