REITs Explained for Property Investors

A Real Estate Investment Trust (REIT) is a tax-efficient, listed way to invest in property. Understanding REITs helps you see how larger commercial property is owned and how you might invest indirectly.

What a REIT is

A REIT is a company, usually listed, that owns and lets property and benefits from a special tax regime. Provided it meets the qualifying conditions, a REIT is broadly exempt from corporation tax on its property rental income and gains, so the tax is largely moved to the investors.

The key rules

• The REIT must be a property rental business meeting asset and income tests.
• It must distribute most of its tax-exempt property income to shareholders, historically at least 90%.
• Distributions of that income, called property income distributions (PIDs), are taxed in the investor's hands, usually with tax withheld.

Investing through a REIT

For an individual, buying REIT shares is a way to get exposure to commercial property, including sectors like logistics or retail, without directly owning buildings, with the liquidity of a listed share. It is a different proposition from direct ownership: you get diversification and liquidity, but no direct control.

Direct vs indirect

Most readers of this site own property directly. REITs are the indirect, listed alternative, and they are how much institutional commercial property is held. If you are considering REIT shares as an investment, that is a financial decision to take with regulated advice.

What is a REIT?

A listed company that owns and lets property and is broadly exempt from corporation tax on rental income if it distributes most of it, with tax falling on investors.

How are REIT distributions taxed?

Property income distributions are taxed in the investor's hands, usually with tax withheld.