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Amendments to UK REIT Rules: What You Need to Know
The UK real estate investment trust (REIT) rules are undergoing significant amendments in the Finance Bill 2023-2024, which is expected to become law in the summer of 2024. These changes reaffirm measures previously announced by the UK Government while introducing additional modifications to the REIT rules.
Key Changes
Let's take a closer look at the key changes that will impact the UK real estate investment landscape:
- Condition D of the REIT rules will be amended to allow non-close REITs with indirect ownership by institutional investors.
- Unit trusts, OEICs, and limited partnerships will only qualify as institutional investors if they meet the non-close condition.
- A company will not be considered close solely based on the voting power possessed by a manager or a general partner of a collective investment scheme.
- Tax exemptions for gains from disposals of UK property-rich co-ownership authorized contractual schemes will be introduced.
- "Property financing costs" will refer to costs related to the UK property rental business for the purposes of the interest cover test.
- The "Group" definition will now include insurance companies holding interests of 75% or more in group UK REITs.
- The definition of "relevant time" in determining the property rental business condition will be amended to include properties valued at least £20 million.
The Finance Bill 2023-2024 has undergone readings and debates in the House of Commons, with further announcements and changes to the REIT regime expected in 2024.
Embracing the Changes
The proposed amendments offer valuable incentives to real estate investors and have substantial implications for lenders as well. Lenders may be required to consent to structural changes to align with the legislative updates. We will continue to provide insights on these changes, including guidance on how lenders can work with borrowers to ensure compliance with finance documents and avoid any breaches or security gaps.
Furthermore, these changes to the UK's REIT regime are particularly noteworthy considering the UK Government's decision not to introduce draft legislation for the reserved investor fund, a new tax-transparent unauthorised vehicle. However, developments in this area may still occur in 2024, and we will keep a close eye on any updates.
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Note: The image used in this article is provided courtesy of Cadwalader, Wickersham & Taft LLP.
Image: Cadwalader, Wickersham & Taft LLP - A leading global law firm specializing in the financial industry.
