Property industry calls for tax renegotiation

The Treasury should renegotiate double taxation treaties to enable Real Estate Investment Trusts to become a reality, the commercial property industry has said.

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A working group looking at technical issues relating to the introduction of the trusts, which would allow investors to buy shares in investment trusts invested in property, outlined its ideas for the investment vehicles today.

There have been fears that the investment models could mean an element of tax leakage. Foreign investors in UK property commonly pay tax on the rental income in the UK, but would pay tax on the dividend income in the conventional model of an investment trust. Dividends which went abroad might not, under international treaties, attract any tax in the UK.

The best solution to that problem would be to renegotiate the treaties, the technical group said today. Such treaties are negotiated on a cyclical basis, meaning the change would not impose an unnecessarily large workload for the Treasury, it added.

The group also suggested other solutions to the tax conundrum, whilst recommending the conventional model used overseas.

One would involve taxing rental income. This would only be viable if the Treasury were to put in place a system of rebates for pension funds and other individuals not liable to the envisaged 22% tax rate.

A third would be what the group termed an ‘internal trust,’ which the group said would require a complex reformulation of tax codes.

The group said it thought it was ‘probable’ that plans for the trusts would still go ahead despite the tax doubts.

It is hoping draft clauses for the trusts will be in the pre-Budget report later this year.

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