A real estate investment trust (REIT) is a company that owns, operates, or finances income-generating real estate.

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Modeled after mutual funds, REITs pool the capital of numerous investors. This makes it possible for individual investors to earn dividends from real estate investments—without having to buy, manage, or finance any properties themselves.

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Real Estate Investment Trusts in the United Kingdom offer several tax benefits to both the REIT itself and its investors. These tax benefits are designed to promote investment in the real estate sector and create an efficient structure for income distribution. Some of the key tax benefits of REITs in the UK include:

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Exemption from Corporation Tax

One of the primary tax benefits of a UK REIT is that it is exempt from paying corporation tax on the rental income and capital gains it generates from its qualifying property rental business. This exemption applies as long as the REIT complies with certain requirements, such as distributing at least 90% of its qualifying property rental income as dividends to shareholders.

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Exemption from Capital Gains Tax

When a UK REIT sells a property or disposes of certain other assets used in its property rental business, it is generally exempt from paying capital gains tax. This encourages REITs to make strategic property sales and optimize their real estate portfolios.

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Dividend Withholding Tax Exemption

Dividends paid by a UK REIT to its shareholders are typically not subject to withholding tax. This means that investors receive the full dividend amount without any tax deductions at source. However, the tax treatment of these dividends in the hands of individual shareholders may vary based on their own tax circumstances.

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Stamp Duty Land Tax (SDLT) Benefits

When UK REITs acquire properties, they often benefit from SDLT advantages. The SDLT liability may be reduced or eliminated in some cases, particularly when they purchase a portfolio of properties.

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No Double Taxation

REIT investors are generally not subject to double taxation on the rental income generated by the REIT. The income is typically taxed at the REIT level, and investors receive dividends that are, in most cases, treated as income in their own tax returns. The dividend income is then subject to individual income tax.

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It's important to note that REITs in the UK are subject to specific rules and regulations, and they must meet certain criteria to maintain their REIT status. These criteria include distributing rental income as dividends, investing primarily in qualifying real estate assets, and meeting ownership and management structure requirements. Additionally, the tax treatment of REIT dividends at the individual level may vary depending on the investor's personal tax circumstances. Therefore, individuals should always consult with tax professionals to understand the specific tax implications of their individual situation. 

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In Summary

REITs are total return investments, offering income and asset appreciation. Total returns tend to be similar to those of value stocks and quite more than the returns of bonds. They typically provide high dividends plus the potential for strong capital appreciation, especially when servicing high demand, low availability sectors such as local authority care, and even more so when the client utilising the REITs properties for their housing requirements is the UK Government. The Assisted Living REIT is property investing, the Simple way.

- all information correct on 4th September 2023.