Changes to the structure of UK real estate investment trusts, emanating from last week’s UK Budget have been welcomed by accounting and prop...

Changes to the structure of UK real estate investment trusts, emanating from last week’s UK Budget have been welcomed by accounting and property industry experts. Under the new structure, to be introduced on January 1 2007, the charge to enter the regime will be 2 per cent of the gross market value of the properties transferred. This is significantly lower than had feared during the consultation process. "More listed property companies are likely to find this affordable. As a result of changes announced in the budget it is now more likely that a significant number of property companies will convert to Real Estate Investment Trusts in 2007,” said Charles Beer, head of real estate at professional services group KPMG. The distribution requirement has also been reduced from 95 per cent to 90 per cent of taxable profits which must now be made within 12, rather than six months as was originally proposed. Another proposal that has been shelved is that a company will not be disqualified from the regime if a shareholder holds 10 per cent or more of its shares or votes. However, the company will be taxed if it pays a dividend to a shareholder holding 10 per cent or more, unless it has taken reasonable steps to avoid paying such distributions. The interest cover ratio requirement has been reduced from 2.5:1, as was originally proposed, to 1.25:1. Under the new rules, REITs will be able to issue fixed rate preference shares and convertible debt. These had been ruled out during the consultation process.