THE REIT STUFF FOR LANDLORDS?
MIKE WHITE, MARTIN & CO
Given the relentless squeezing of landlords by HM government I have concluded, in the past, that selling their asset was likely the only option. However, this has been bugging me; saying, ‘Just give up’ goes against the grain and I’ve been contemplating other ways around the issue.
Before I elaborate, I’m neither a tax advisor nor a financial advisor in the regulated sense and what follows are just my personal musings. Nonetheless, one vehicle I think could work is a Real Estate Investment Trust. They’ve have been around in the UK since 2007. Ours are highly regulated companies, set up to be tax efficient owners of large property portfolios. The owners of the Norwich Chapelfield Shopping Centre and the Riverside Leisure Centre are REITS.
The tax efficiency comes from the fact they do not pay capital gains or corporation tax. Add to that REITs are legally bound to pay a minimum of 90% of all property rental profits to shareholders on an annual basis and, by being quoted on the stock exchange, can offer liquidity, you’ve got an alternative worth considering. For those landlords who don’t have much of a buy to let mortgage and/or are not higher rate tax-payers, a REIT is unlikely to offer the same returns as owning your property. But for those who only have a choice of selling or... what(?) a REIT could be the ‘or what’.
At this point you’ll be shouting, ‘that’s all very well but how do I get my property into one of these REITs without incurring a Capital Gains Tax liability?’ The answer to the question is to find a REIT which is willing to exchange your property for shares. That’s potentially a risk as swapping bricks for paper has got to be but the advantage is, there would be no CGT liability incurred until the shares were sold at some future point.
There are a few residential REITs already out there but I think the far more interesting play would be to put together a Norfolk based REIT for local investors. It would probably only need a total of 500 properties to make it work. Anyone interested? Give me a call at Martin & Co and let’s see if it could be a goer!