Property Based Investments

Question 1

Types of Property based investments (4)

Answer 1

1. Shares in listed property companies
2. Property unit trusts and investment trusts
3. Offshore property companies
4. REITs

Question 2

How do shares in listed property companies differ to direct holdings

Answer 2

1. More liquid
2. Diversified over a number of properties
3. Share price affected by quality of mgmt and level of borrowing and value of holding
4. Share prices will rise and fall independent of property values (supply and demand)
5. Company pay corp. tax on capital gains + rental income

Question 3

Different types of property companies

Answer 3

1. Hold property a investment
2. Undertaking developments
3. Both

Question 4

Factors specific to Property Unit Trusts

Answer 4

1. Liquid
2. Can not borrow
3. Price of unit directly linked to holdings
4. Can invest in property companies or direct property
5. Can delay redemption to raise money to pay investors (up to 6 months)

Question 5

Factors Specific to Property Investment Trusts

Answer 5

1. Liquid
2. Can borrow
3. Invest primarily in investment companies and only small percentage direct
4. Share price will move independently of NAV depending on demand

Question 6

Explain a Property Authorised Investment Fund (PAIF)

Answer 6

1. FCA authorised OEIC invests mainly in property
2. Taxed on investor not fund - as if direct holding
3. Property income ring fenced in PAIF - other income taxable at 20%
4. 3 types of Distributions:
   
   • Property income - paid net of 20% tax
   • Interest income - paid gross
   • dividends - paid gross

Question 7

Explain Offshore Property Companies

Answer 7

1. Offshore unauthorised investment trusts
2. Can invest 100% in direct property
3. Usually obtain UK market listing
4. Less corp tax in the fund
5. Pays income tax on rental income

Question 8

What are the aims of a REIT

Answer 8

1. provide liquid property investment
2. widely accessible
3. Tax treatment closely aligned to direct holdings

Question 9

Explain structure of a REIT

Answer 9

1. Closed ended companies
2. Resident in UK for tax purposes
3. Listed on recognised stock exchange
4. 75% of gross profits from rental income
5. At start of each accounting period, assets in tax-exempt part must be 75% of total assets
6. Interest on borrowing must be 125% covered by rental profits
7. 90% of tax-exempt profits must be distributed within 12 months of accounting period

Question 10

Explain Tax of REITS

Answer 10

1. 2 elements:
   
   • Ring-fenced property letting business (no corp tax)
   • non-ring-fenced business e.g mgmt of properties (corp tax 20%)

Question 11

Explain Tax of investors in REITS

Answer 11

1. Ring fenced part:
   
   • paid net of basic rate income tax - can reclaim/ will need to pay extra
2. Non-ring-fenced part:
   
   • Dividends tax
3. Capital gains treated as normal