Investment Vehicles: Property investment to be more efficient

Investing in property assets will soon become more tax efficient, thanks to a pledge from the Government to introduce tax-privileged property investment vehicles.

For the first time, the Chancellor committed the Government to establishing Real Estate Investment Trusts (Reits), pledging to publish draft legislation next month. Although details of their structure have yet to be decided, similar vehicles in other countries are exempt from tax.

In return, most of their income is paid out in dividends, which are taxed in the hands of recipients. Reits have been considered in the UK for some time as a means to give investors safer and more transparent access to the property market, but the Treasury had feared it may lose out on tax revenues.

The Treasury gave Reits the green light yesterday, but said only UK-based publicly listed companies could become Reits. It also stipulated that 95 per cent of income would have to be distributed to investors.

Peter Beckett, of Ernst & Young, said: "The promise of legislation to bring in Reits is very good news, after a period of hesitation. I hope the rules will be simple and clear enough to attract the private investment the Chancellor said he wanted."

Nearly 60 per cent of new investment trust launches in 2005 were in the property sector, according to the Association of Investment Trust Companies, demonstrating demand for property assets.