Chancellor Alistair Darling today made it easier for property companies to become REITs, but operational businesses which own property assets will face more hurdles.

In the pre-budget report, Darling also did not incentivise companies to become residential REITs.

Stephen Herring, Senior Tax Partner BDO Stoy Hayward said: ‘A number of UK corporates with significant property assets (including some large retailers and pub chains) have been exploring the opportunities for obtaining the perceived tax benefits (potentially no UK corporate tax on the profits) available in the UK-REIT regime.

‘Whilst it was always to be expected that the Chancellor would wish to restrict the regime solely to property investment companies, it is disappointing that he has not used the PBR to promote, for example, the launch of residential property UK-REITs; there are currently only twenty UK-REITs and the issue is that there are too few, not too many.

‘The Chancellor must be careful to avoid freezing the regime to new entrants. Events elsewhere in the property sector have demonstrated that closed end listed entities such as UK-REITs are more commercially robust than open ended funds which are often unsuitable for illiquid assets such as real estate.’

UK REITs were launched on 1 January 2007.