stock market

Real estate investment trusts could pave the way in 2018

The government is levelling the playing field between overseas corporate investors and domestic investors, leading some to start looking at tax-efficient alternatives – which could bring REITs into the spotlight.

From April 2019, foreign owners of UK property will be subject to capital gains tax when they sell commercial and residential investment property, which they are currently exempt from. Although this may seem a long way off to some, many investors will be thinking ahead and considering their options.

The benefits of REITs

Real estate investment trusts (REITs) are one such option. First introduced in the UK in 2007, they are companies that invest in properties, the shares of which can easily be traded on the stock exchange. They are exempt from corporation or capital gains tax, making them an attractive choice. To qualify as a REIT, a minimum of 75% of the company’s profits must be from property rental, and three quarters of the assets must also be involved in the property rental business.

Compared to buying direct property, aside from the time that can be saved from the extensive research and legal implications involved, transaction costs are much lower as only 0.5% stamp duty is incurred by the investment as opposed to up to 4%.

REITs must also pay out 90% of their rental income to investors as dividends, and many of them have long-term tenancy agreements, which can make the income generated from them more reliable – although, as with any investment related to property, there are no guarantees.

Well-known REITs include British Land, which owns huge shopping centres including Meadowhall in Sheffield as well as significant residential units in London, and Unite Group, which is one of the UK’s largest providers of student accommodation across 28 cities.

Risky business?

Alex Moore, research analyst at Rathbones, points out some of the risks involved when considering investing in a REIT.

“Investors looking to new REITs as a potential source of income should be aware of the risks, such as political and regulatory changes,” he said. “Although not a great concern in the short term, the residual value of property assets should also be considered. For example, will the tenants or asset operators want to rent the property at the next lease break?”

The property market directly affects the performance of the trusts, so while long-term returns can be strong, they can see short-terms falls as well. If interest rates increase, demand for REITs could go down, which has happened in the past and is something else to consider when choosing which investment option to take.

However, it is still likely to be a solution for some institutional investors as the UK’s tax regime potentially becomes less attractive than it has been in the past. According to Seeking Alpha, the best strategy is to focus on REITs with strong portfolios, high-quality tenants and good growth potential in order to secure the best income.

Self-certified Sophisticated Investor

Please read

I declare that I am a self-certified sophisticated investor for the purposes of the restriction on promotion of non-mainstream pooled investments. I understand that this means:

I am a self-certified sophisticated investor because at least one of the following applies:

I accept that the investments to which the promotions will relate may expose me to a significant risk of losing all of the money or other property invested. I am aware that it is open to me seek advice from someone who specialises in advising on non-mainstream pooled investments.

High Net Worth Investor

Please read

I make this statement so that I can receive promotional communications which are exempt from the restriction on promotion of non-mainstream pooled investments. The exemption relates to certified high net worth investors and I declare that I qualify as such because at least one of the following applies to me:


Sign up for first access to new developments and exclusive property investment opportunities.

We send limited and targeted emails on new launches and exclusive deals which best fit your areas. We are trusted by over 30,000 active buyers as their source for new stock.

  • New property developments
  • Professional market reports
  • Property deal alerts
  • Development updates
Manchester property investment


Receive trending news straight to your inbox and stay up to date on all of the property market trends and advice.

Established since 2005 we are a leading voice of authority and commentary on the UK property market. Our news is trusted by Apple News & Google News.

  • UK housing market
  • Mortgage & money
  • Buy-to-let landlords
  • Guides & advice

Talk to us

Speak to our UK property experts today:


+44 (0) 333 123 0320

Open from 9am-6pm GMT


+852 6699 9008

Open from 9am-6pm HKT