The REIT: a smarter way to invest in UK real estate

As confidence returns to the UK real estate market, investors are taking a closer look at how they access opportunities and how those investments are structured.  

Tax efficiency, liquidity, governance and flexibility are increasingly important considerations in a market that remains sensitive to economic and geopolitical uncertainty. Step forward the Real Estate Investment Trust (REIT).  

Introduced to make the UK more competitive alongside other major markets with established REIT regimes, this government-backed scheme is designed to encourage wider investment into UK real estate through enhanced liquidity and a favourable tax treatment. 

When combined with a Jersey holding structure, investors may also benefit from additional flexibility around governance, distributions and listing requirements, as well as potential stamp duty efficiencies.

This briefing looks at the key features of the UK REIT regime and the potential advantages of using a Jersey company as part of the structure.

Key features of the UK REIT regime 

A key benefit of electing into the REIT regime is that any profits which arise from its underlying property investments are exempt from both corporation tax and capital gains tax - a significant differentiator in a landscape of marginal gains. 

One of the principal requirements of the REIT regime is that the REIT must distribute at least 90% of its rental profits to investors. Those distributions are generally subject to withholding tax at 20%, with the rate increasing shortly to 22%. However, material tax savings may be available for overseas investors by virtue of the UK's extensive double tax treaty network, which in some cases – for example, South Korea - can reduce the applicable withholding tax rate to 15%. 

The UK government further incentivised the use of the REIT with recent amendments which saw a relaxation to the listing requirements. Where at least 70% of a REIT's share capital is held by qualifying institutional investors, including pension funds and sovereign wealth funds, the REIT would not be required to list, making the economics even more appealing.

Why use a Jersey company for a UK REIT? 

To be in scope of the regime, a REIT must be UK tax resident. That being said, this doesn't require a REIT to be established in the UK. We have increasingly seen clients use a Jersey vehicle for this purpose.

TISE listing advantages 

The International Stock Exchange’s (TISE) is the largest market for listed UK REITs. Its popularity has grown rapidly due to lower costs, faster application turnaround times and friendlier regulatory requirements. 

It is important to note that there is no requirement for a company to be incorporated in Jersey in order to be listed on TISE. However, from an administrative and governance perspective, there is often a practical benefit in aligning the jurisdiction of the legal entity with the jurisdiction of the listing.

Greater distribution flexibility under Jersey law 

One of the key attractions of using a Jersey company is the flexibility of Jersey's statutory distribution regime. Under UK law, distributions can only be made out of distributable profits, which can be constraining. Whereas Jersey law permits a company to make a distribution provided the directors are satisfied that the company would be able to meet a test of solvency both immediately and within a 12-month period approval. 

This is particularly appealing for real estate holding structures where much of the value is sat within the assets and therefore may not always translate easily into in accumulated accounting profits. 

Stamp duty efficiencies 

Holding UK real estate through a Jersey vehicle may also provide stamp duty land tax (SDLT) efficiencies on exit. As SDLT is generally charged on land transactions, rather than transfers of shares, the sale of shares in a Jersey company which owns UK real estate should not typically give rise to an SDLT charge. This can be an attractive feature for investors considering future disposals.

Why Jersey remains a trusted investment jurisdiction 

Jersey is a well-regarded and internationally recognised jurisdiction with a long-established track record in supporting institutional investment structures, particularly in real estate with the Jersey property unit trust (JPUT) being hugely popular. Its appeal is underpinned by a stable political and legal environment, a sophisticated court system rooted in common law principles and a deep pool of experienced administrators, directors, lawyers, accountants and other professional advisers.  

Jersey is also widely recognised to have regulatory standards that are familiar to institutional investors and aligned with international expectations on transparency, anti-money laundering and tax cooperation. The island has consistently demonstrated its commitment to global standards, including through its inclusion on the OECD white list and its cooperation with international tax transparency initiatives, while retaining the flexibility and efficiency that make it an attractive jurisdiction for establishing and administering investment vehicles. 

Ogier Global's Real Estate Services team   

Ogier is positioned to provide an integrated service solution for clients’ UK REIT requirements, combining support for both the UK and Jersey administration aspects, established listing capability and Jersey legal expertise within a single integrated offering.  

This is further enhanced by Ogier Global’s specialist Real Estate Services team, which supports many leading investors with the establishment, administration and ongoing management of various real estate holding structures. Working alongside Ogier’s legal and listing team, we are able to deliver a commercially focused service across the full lifecycle of a UK REIT.

About Ogier

Ogier is a professional services firm with the knowledge and expertise to handle the most demanding and complex transactions and provide expert, efficient and cost-effective services to all our clients. We regularly win awards for the quality of our client service, our work and our people.

Disclaimer

This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

Regulatory information can be found under Legal Notice