Property based Investments

Question 1

Advantages and disadvantages of property funds

Answer 1

Advantages

Attractive absolute returns
Potential for high income/rental yields
Diversification
Low correlation with bonds and equities

Disadvantages

Lack of liquidity
Volatility
Costs

Question 2

REITS

Answer 2

Closed ended companies listed on stock exchange (includes AIM)

Resident in UK for tax purposes

Issues one class of ordinary share

At least 75% of total gross profits must be from tax-exempt business

Interest on borrowings has to be at least 125% covered by rental profits

Exchange traded - can trade at discount or premium to NAV

Question 3

REIT Taxation

Answer 3

Ring-fenced property letting business - exempt from corporation tax (90% of these profits must be distributed as dividends)

Other activities - subject to corporation tax

Question 4

Investor Taxation

Answer 4

Ring-fenced tax-exempt element - treated as UK property income (paid net of 20% tax)

Non-ring-fenced element - taxed as any other dividend/investors pay tax depending on their tax position

Gains subject to CGT