What is a Real Estate Investment Trust (REIT)?
A REIT (pronounced "reet") operates like an investment trust. It is a quoted company that owns and manages income-producing property, either commercial or residential.
REITs provide a way for investors to access property assets without having to buy property directly.
REITs have a tax efficient nature; because most of the company's taxable income is distributed to shareholders through dividends, the company is largely exempt from Corporation Tax. Therefore the double taxation (Corporation Tax plus the tax on dividends) of ordinary property funds is removed.
How risky are REITs?
Most REITs focus on particular types of commercial development. This concentration leaves them vulnerable to a downturn in this particular sector of real estate.
Investors should also examine where the REIT's projects are located. A high concentration of development in one community or geographic region may leave it vulnerable to a downturn in that area's economy.
Benefits of REITs
A REIT diversifies your investment over a number of different properties, so ironing out the sharp ups and downs that you may get form investing in one individual property therefore, your risk can be reduced.
Different REITs focus on different properties such as, industrial, commercial, residential and office accommodation, so it is important to consider which area best suits your needs and appetite for risk.
- Currently exempt from Corporation Tax*.
- Liquidity - easily traded on the LSE online and by telephone.
- Access to property investment for minimal outlay - opportunities for growth, income and portfolio diversification.
- Access to UK commercial property, e.g. shopping centres and retail parks.
- Lower transaction costs than buying property directly (only 0.5% stamp duty on UK REITs compared to direct property which is up to 4%).
- There is no responsibility for property held in a REIT on the part of the investor.
*Please note that the tax treatment of these products depends on the individual circumstances of each customer and may be subject to change in the future.
How much will it cost?
REITs are traded like shares and are charged at normal online commission rates, which start from just £5.95. See full rates and charges.
Where can I find more information about REITs?
From the London Stock Exchange:
From REITA - Administered by British Property Federation:
What type of account do I need?
You can invest in REITS through our Trading, Trading ISA and SIPP Accounts.