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Real Estate Mutual Funds
[Chap. 5.8]
9. Have no more than 20 per cent of its assets consist of stocks in taxable REIT subsidiaries.
United Kingdom REITs
For many years the Treasury resisted the idea of introducing REITS. However, following a report on housing supply in the UK by Kate Barker, they reconsidered their position and issued a consultation paper on the form that REITS should take. The first part of the consultation ended in July 2004 but the issue was raised again as part of the Budget 2005 discussion paper. In this the Government published a summary of the format which it intended REITS to take. This was followed by draft legislation which is likely to be enacted in 2006. The legislation laying out the rules for UK REITs is due to be enacted in the Finance Act 2006 and will come into effect in January 2007. UK REITS will have to distribute 95% of income. They must be a close-ended investment trust and be UK resident and publicly listed on a stock exchange recognized by the Financial Services Authority. In the United Kingdom, real estate investments are done through ‘Pooled Managed Vehicles’. While these are different from Open-ended Investment Companies (OICs), they can be in the form of Trusts. The regulator for these PMVs is the Financial Services Administrator (FSA), as is the case for OICs. They, however, have a variable capital and are similar to open-ended funds. PMVs may get tax benefits based on the investor profile. Offshore funds as well as pension fund investors qualify for benefits. However, there are no tax benefits for the regular PMVs. This is similar to there being no tax benefits for typical OICs. The PMV has the ability to delay redemption if there is excessive pressure to exit the fund.