Budget 2011: Reits 2% conversion charge scrapped

The Chancellor George Osborne has proposed scrapping the 2% conversion charge on real estate investment trusts (Reits).

In the Budget 2011, Osborne revaled plans to launch a consultation next year to discuss scrapping the 2% conversion charge Reits currently pay.

The consultation will be made in the upcoming Finance Bill 2012 which aims to support good business practices.

The government hopes scrapping the conversion charge will remove barriers to entry for groups looking to launch Reits, while making them more attractive for investors.

Earlier today Osborne said the tax rules around Reits would be simplified.

Patrick Sumner, head of property equities at Henderson and manager of the $800m Global Property Equities fund, says the move is likely to spark a raft of new Reit launches.

"This will unblock a pipeline which would result in a number of new Reits coming to market. You could also see Reits being able to bulk up because there is no conversion charge on corporate acquisitions, and it makes it easier for the banks to offload properties in listed vehicles which they want to do given a fair wind."

However, he says as the proposals are in the consultation stage, it is not yet known what restrictions the government might impose on the trusts as a condition of abolishing the tax.

Andrew Jackson, manager of Standard Life Investments' Select Property fund, adds the move to simplify the asset class will broaden its appeal. "We welcome any efforts to simplify Reit legislation and make them more accessible to investors," he says.

"Any proposed changes that bring in a wider audience of investors can only be good for the UK property market and investment in the UK economy as a whole."