The UK government is re-evaluating the regulations governing Real Estate Investment Trusts (REITs), deeming some of them outdated and burdensome. Over the past year, several changes have been introduced to the UK REITs regime, and on 18 July 2023, draft legislation was published for the Finance Bill 2023-24, proposing further enhancements to the UK REIT regime’s tax rules.

The draft legislation aims to revamp the UK REIT regime, making it more appealing for real estate investment. These proposed amendments are part of a broader review of the UK funds regime and follow changes made to the REIT rules in the Finance Act 2022 and the Finance Act 2023. The previous amendments have eased the requirements for REIT shares and property ownership, adjusted the rule for property disposals following significant development work, and reduced administrative burdens for certain partnerships investing in REITs.

The government’s new proposals include changes to the condition that a REIT must not be a close company, adjustments to ensure the rule for REITs involving a single commercial property works as intended, and an expansion of the exemption for gains on disposals of interests in UK property-rich companies. The proposals also aim to enable insurance companies to have a significant interest in a group UK REIT and clarify the definition of “property financing costs” for the profit to financing cost ratio.

These changes are expected to take effect from the date the Finance Bill 2023-24 receives Royal Assent. While these proposals should generally be welcomed by taxpayers affected by the rules, especially groups with insurance companies or institutional investors in their REIT structure, the government has stated that it will continue to consider other reform options. The government’s consultation on the draft clauses, including those relating to REITs, closes on 12 September 2023.