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Proposals in the government's informal consultation on changes to the real estate investment trust (REIT) regime were supported by all respondents, who backed the abolition of the 2% conversion charge for companies joining in the REIT set-up. The Treasury has agreed it will be axed.
The regulations will be loosened to allow listing on AIM and PLUS markets and their foreign equivalents, although the Treasury has confirmed the measure will not allow the establishment of private REITs.
A fixed grace period for meeting the non-close company requirement will be introduced: three years with no discretionary extensions.
If the close company rules are not met for legitimate reasons by the end of the grace period, the company will lose its REIT status without further penalty.
If, however, a business fails to meet the requirement and is deemed to have joined the REIT regime to gain a tax advantage, existing legislation will be invoked.
Financing costs for the interest cover test will be redefined so that it is interest paid on excessive borrowing that will be measured in the test rather than the total finance costs incurred in borrowing. And the time limit for complying with the distribution requirement will be extended from three to six months.
The detailed provisions will be available for technical comment when they are published in draft on 6 December, before inclusion in Finance Bill 2012.
