What is Real Estate Investment Trust (REIT)?

Full Definition

A Real Estate Investment Trust (REIT) is a listed company (or group) that owns and manages a portfolio of income-producing property -- commonly offices, shopping centres, warehouses, student accommodation, or residential blocks -- and that has elected into the UK REIT regime, a special tax status introduced in 2007 that exempts a REIT's qualifying property rental business from Corporation Tax, provided it satisfies a set of ongoing conditions. To qualify and maintain REIT status, a company must be UK tax resident and listed on a recognised stock exchange, must not be a "close company" in most cases (broadly, not controlled by five or fewer participators, subject to some institutional investor exceptions), must derive at least 75% of its total profits and hold at least 75% of its total assets in the qualifying property rental business, and, most distinctively, must distribute at least 90% of its qualifying rental profits to shareholders each year as a "Property Income Distribution" (PID). The REIT structure exists to remove the double layer of taxation that would otherwise apply to indirect property investment: without it, a property company would pay Corporation Tax on its rental profits, and shareholders would then pay Income Tax or Dividend Tax again on the dividends paid out of those already-taxed profits, whereas a REIT pays no Corporation Tax on its qualifying rental business, and instead the burden of tax is shifted almost entirely to the investor, who receives Property Income Distributions that are taxed as UK property income (not as ordinary dividends), meaning PIDs do not benefit from the £500 dividend allowance and are instead subject to Income Tax at the investor's marginal rate, with basic 20% Income Tax typically withheld at source by the REIT before payment (though this deduction does not apply to PIDs received within an ISA, SIPP, or by a UK pension scheme, which are usually exempt from this withholding and any further tax on the income). Investors buy REIT shares on the stock market in the same way as any other listed company's shares, meaning they get exposure to a diversified commercial or residential property portfolio with the liquidity of a tradeable share (unlike direct property ownership, which is illiquid and requires far larger sums to diversify), and any capital gain on selling REIT shares is taxed under ordinary Capital Gains Tax rules using the £3,000 annual exempt amount and the 18%/24% rates for 2026/27, separate from the Income Tax charged on the PIDs received while the shares are held. Worked example: an investor holds shares in a UK REIT that owns a portfolio of logistics warehouses; the REIT pays no Corporation Tax on its rental profits, distributes 90% of those qualifying profits as PIDs, and the investor -- holding the shares outside an ISA -- receives a PID with 20% Income Tax already deducted at source, which they then report on their Self Assessment return, with any further tax due (for a higher-rate taxpayer) or a refund (for a non-taxpayer) settled through the usual Self Assessment process.

Related Calculators

See Also