Friday, 14 December 2012

British Land: our taxes are REIT.

Further to our previous story regarding British Land and its offshore company registrations, (read it here) Virtual-Lancaster was pleasantly surprised to receive the following statement from BL about the structure under which the company operates:

"British Land is a UK Real Estate Investment Trust (REIT).  REITs are a government supported, internationally recognised investment vehicle which provide an opportunity for shareholders of all sizes, including individuals, to invest in property as if they owned it directly.  British Land became a REIT on 1 January 2007 when it paid a conversion charge of more than £300 million (2% of the market value of its investment properties) to HM Revenue & Customs (HMRC).

"REITs are not liable to tax on their rental income or capital gains from their activities which are paid by the investor/individual instead.  REITs must distribute 90% of the profit generated from their REIT activities to their shareholders as dividends and British Land paid out dividends totalling £231 million for the year ending 31 March 2012.  British Land’s largest shareholders are mainly large institutional investors, including pension funds.  Around 10% of shares are owned directly by small investors.

"British Land has a large number of UK and overseas companies covering its UK and overseas operations.  In the main, all the overseas companies holding UK property are UK tax resident, are part of the REIT regime and subject to the conditions described above.  The companies holding overseas properties are subject to tax in the jurisdiction where the property is located.  

"So, REITS are a channel to invest in a property portfolio, with the same tax attributes as owning property directly.  The structure allows anyone from local Lancaster residents through to major companies to invest in the rental income generated from property owned by the REIT.  Local people owning shares in British Land could in future benefit from income created by the proposed development once it is completed and trading.  This is because British Land is required to distribute 90% of its REIT profit as dividends.  It would then be up to those local people to pay tax on the dividends they receive.

"In September 2012, British Land calculated the impact its £2.1 billion development programme is having on communities across the UK.  Between 2011 and 2015, British Land will contribute £1.2 billion to the UK economy and create 32,300 jobs through its construction projects.  For every £1 million British Land spends on construction, it generates an estimated 31 jobs.  In Lancaster, the Canal Corridor North development will boost the local economy through the creation of many new jobs and act as a catalyst for attracting further investment."

Having scoured the internet, I can tell you now that this is one of the clearer explanations of how REITs (which you pronounce to rhyme with 'sweets') work, and I appreciate it.

I'm no accountant, which may explain why I'm still struggling to understand how those 143 British Land-owned companies registered in Jersey (0% Corporation Tax), as reported by Action Aid in 2011, fit in. I've asked BL for a bit more help on this, but welcome readers' contributions and experiences too. Perhaps it's something we can all have a go at?

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