REITâ€™s benefit from a series of key benefits including tax advantages, income return and inflationary protection. REITâ€™s are a kind of organisation that are generally considered to be a â€śpass-throughâ€ť company, meaning that the majority of income cash flows can be issue to the shareholders and investors, free of corporation tax which in turn means higher dividends for said investors, through the income from rentals and management.
Historically, REITs were most common in the United States and various other developed countries but are a relatively new addition to the investment scene within the United Kingdom. The primary features of a United Kingdom are that it is exempt from tax on any income received through rental and also any gains on the sale of these properties. However, it is required to meet certain requirements. For example, it must:
* Be a listed company (a company whoâ€™s shareâ€™s can be purchased on a stock exchange.
* Not be controlled by five, or less than five, shareholders
* Have invested in properties that consist of a minimum of 75% of itâ€™s total assets
* Have rental profits that are a minimum of 1.25 times the amount of itâ€™s interest payments
* Pay a minimum of 90% of itâ€™s tax exempted profits out as dividends
However, the repercussions of failing to abide by these rules can often vary. In many cases, tax is made payable depending on the actual level of the breach. In some more extreme cases, the organisation may be stripped of its REIT classification altogether. The distribution of the profits resulting from the tax exemption profits on investments, are only provided to investors following the subtraction of the basic national tax rate. Those investors who fall within the higher tax rate band will be required to pay additional tax on these dividends but this would be treated as United Kingdom property income as opposed to dividend income.
For investors or individuals looking to start or invest in REITâ€™s, itâ€™s important to consult professionals who can properly advise on the full level of implications and considerations required as itâ€™s quite a complicated field. The premise is simple but the actual details require careful consideration as the punishments for failing to abide by the rules can result in some expensive punishments.
Real Estate Investment Trusts are affordable more risk-free ways of investing for private wealth managers with another primary benefit being that shares in the publicly traded REITâ€™s are a much more flexible trading options and provide a higher level of stability.