Welcome news for unit trust investors

New tax-efficient status on the horizon?

Retail unit trust investors have been at a fiscal disadvantage since 1 January 2007 when REITs were set up, enabling many listed property companies to obtain a tax-free status.

The ‘authorised’ property unit trusts continued to pay 20 per cent corporation tax on their rental income, and stamp duty reserve tax on the exchange of units within the funds.

The Government said in its paper that it had created a ‘framework’ under which investors would face ‘broadly’ the same tax treatment as if they had owned property directly or through a UK REIT. As such, the vehicle would pay no tax but individual investors would be taxed on their income at a personal level.

The Government emphasised that the framework would be used as a basis for further discussions with the industry. However, the plan is to publish a technical paper in the summer and, potentially, introduce draft regulations thereafter. There will be no conversion charge for ‘authorised’ property funds, in contrast to REITs, which had to pay a conversion charge of 2 per cent of gross assets to get a tax-free status.

Currently, ‘authorised’ property investment funds fall under two categories – ‘authorised’ unit trusts (AUTs) and open-ended investment companies (OEICs). Existing AUTs would have to convert to OEICs to take advantage of the new regime.

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