Tuesday, March 2, 2004

On March 17 the Chancellor is set to outline his financial plans for the coming year, but this time Mr Brown is also widely expected to be introducing a consultation which could revolutionise the way in which people can invest in property.

Tax efficient property schemes, or real-estate investment trusts (Reits), are a way of letting individuals invest in property without having to pay crippling taxes, and it is hoped that, if the consultation goes ahead, the introduction of this new form of investment could bring some well needed life back into the property game.

Bringing more money into residential property is also something the Government is thought to be looking at, and this would be a good way to encourage people to invest. If the man on the street is investing in property, that would also likely grow the housing stock and introduce more liquidity into the market.

Pension fund managers are also likely to be looking at investing in Reits, because they will see it as a safe investment which is more tax efficient.

Another advantage would lie in evening up supply and demand in residential as well as commercial markets, and some commentators are speculating that the industry could as much as double in size, as happened in America and Australia when similar schemes were introduced.

‘Every other major country has some form of scheme like Reits. One of the main arguments for it is that it will bring us into line with these countries where it has worked well and we can learn from how their markets have responded,’ says Philip Ingman from Spreffs of Strutt & Parker.

‘We have yet to see the final paper, so it impossible to speculate on the fine print. We can’t say what kind of restrictions will be placed on companies, should they opt to convert. For instance, in America you can’t convert to trust status if you are a developer. Also some of the schemes make a company come up with a one-off payment to make up for the loss in revenue on corporation tax.’

So the detail contained within the paper could make a considerable difference to who this will affect, and how.

However, even if the Chancellor does publish the consultation paper this month, there is still a long way to go, says Mr Ingman: ‘Results from the consultation would likely be in towards the end of the year, after which the final paper must be completed which could take months longer.

‘But many people here think that introducing Reits would revitalise a market which has been a fairly stagnant investment proposition in the UK for years.’